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China's evolving computer industry: the role of foreign technology transfers

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China's evolving computer industry: the role of foreign technology transfers
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Simon, Denis F.
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U.S. Congress. Office of Technology Assessment
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94 pages.

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Computer industry -- China ( LCSH )
Computer software industry -- United States ( LCSH )
Technology assessment -- United States ( LCSH )
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federal government publication ( marcgt )

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This report provides a series of assessments regarding China's strategy and objectives for computer development. It examines the specific role played by acquisition of foreign computers and related know-how by PRC.

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University of North Texas
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This item is a work of the U.S. federal government and not subject to copyright pursuant to 17 U.S.C. §105.
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Y 3.T 22/2:2 T 22/24/v.2/pt.1/China ( sudocs )

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University of Florida
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Office of Technology Assessment

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CHINA'S EVOLVING COMPUTER INDUSTRY: TB! ROLE OP FOREIGN TECHNOLOGY TIANSP!IS Prepared by* Professor Denis Fred Simon Sloan School of Management Haaaachueetts Institute of Technology June 25 1986 *Special thanks to Mr. Detlef Rehn of the Ostaaien Inatitute in Bonn, FtlG for aaaiatance rendered in preparation of this preliminary report. Report prepared for the International Security and Commerce Branch of the Office of Technology Aaaeaaaent, US Congreaa, Waahington, D.c. The information contained in thi paper 1 for OTA uae only.

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Table of Content A. Introductioa----------------------------------------2 1. Overall Per,pective---------------------------------4 c. Structure and Or1ani1ation--------------------------9 D. China' Strate11 for Coaputer Developaent----------15 1. Conatrainta Proar in Coaputer Developaent and Applicatloa-------------~--------------------24 ,. lole of Poreian Coa~Jter Iaporta Technolo11------40 G. Poreian Coapetition in the China Coaputer Market---51 Tvo Brief Exaapl of US Coaputer Pirae in China--55 B. National Security China' Coaputer Developaent---61 1. Th Socio-Political lapact of Coaputera------------70 J. Projection of China' Coaputer Puture-------------72

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Chart and Table Selected IC 16D and Prod~ction Unit in China-----------10 Coaputer Application in China--------------------------22 Application of Nini 6 Malnfraae Coaputera in China------23 Oraaniaation of China' Coaputer Induatry---------------80 China' llectroaica Induatry----------------------------81 Hajor Achieveent1 in China' Coaputer Iadu1try---------s2 China' Leading Coaputer Facilitiea---------------------83 Mini Mainframe Computer Saiea to China----------------84 US Computer & Equipment Sales to China------------------85 Selected Chinese Microcomputers-------------------------86 Estimated Computer Production in China-----------------87 Nev US Computer Export legulations----------------------88 Selected !zamplea of PRC Computer Imports and Poma of Cooperation with Foreign Corporation~---------89

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A. Introduction ~In the 1950a beaan to develop coaputera throuah copyin1; aince then, there ha alvaya been a tendency to eaphaaia hardware over aoftvare, aainfraaea over peripheral and coaponenta, re1earch and deaian over tech-noloay and production, applicative ezprl-aent over practical reault1. Thu, for a lona tiae, coaputera pr~duced in our country ha been known to be unreliable, unaupported, n~t eaay to uae, and not ea1y to repair. Moreoer, have too aany varieti of coaputera which are lar1l1 identical with only a few ainor differencea. In addition, our coaputera are not produced in batch and developaent 1 rather alov. A fact ha proven, thia 1 not a 100d atrateay for developin1 coaputera. (leaarka of a reaearcher froa the Inatitute of Coaputer Technology, Chin Acadeay of Science) 2 Since th announceaent of th four aodernization prograa in the aid-1970, China ha paid apecial attention to the developaent of ita coaputer induatry. In the March 1978 S&T plan, for ez.aple, coaputera were one of the eight priority area aingled out by the leader1hip. The aain iapetua for pu1hing ahead in the coaputer area derive fro a blend of scientific, tnduatrial, and defen1e-related iaperativea. Chineae leader hope to move China into the 10-called age of inforaatica ~v encouraging the vide1pread utilization of computer, in all 1ectora of the economy and 1ociety. Thi effort, which baa undergone a number of tviat1 and turn 1ince 1978, ha high level 1upport among both the political aa vell the acientific coaaunity. And, in aoae 1wang Xin11ang, tdeaa on Developing Computer Country, Zlran Bianzhenafa Tonaxun, Number 6, 1982, tran1lated in JPRS 83064, March 14, 1983, pp.1-5. -in Our pp.3-5

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J ar, it haa already begun to ylld appreciable rult. In contrat to the preYiou focu on aainly cientific calcultion, coaputr ar bing ud today in bookkeeping, inventory control, production control, product dlgn, d1~ dlagnoi, and traffic aanageaent. Thi rport proldea a rle of nt rgarding China' trategy and objcti for coaputer developant. It zaine the pclfic role playd by acqulition of foreign coputr and relatd knov-hov by the PRC, tring vhat the likely ianact of recent and future coaputer l~ort in China vill be. A. lit of lected iaport and other for of foreign participation 1 provided in the appendix. Th-information contained in the report 1 baed on an eztenaive review of Chinese and En&lih lanauge ource on coaputer developaent; b)interview with US coaputer fir engaged in China-relted buin; and c)a erle of field trip to China, one in July 1985 to Shanghai and a second to Beijing in January 1986. In the case of the former, interview and alt vilt concentrated on Shanghai' role a locl coaputer and electronic base in China' overall developent. In the cae of the latter, ting were held with governaent official tn th State Council, Minitry of Electronics Indutry, and variou other centrally-led organization to certain Bijing' goal and intention regarding national computer developaent.

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4 a. Orall Per1pecti Chin leader, will continue to attach areat importance to the expanded deelopaent and aore effective application of coaputer1. The PRC pu1h in the coaputer area bear, a nuaber of 1i~ilaritie1 vitb th rrencb effort of the 19701. Nora and Mine, in their 1eainal work entitled The Coaputeri1ation of Society, bi1hli1tt the feature of a national plan in Prance de1i1nd to a1nia11 dependence on foreicn aourcea of technolo11 and equipaent vbil harne11in1 coaputer1 to 1tiaulate econoaic and 1ocial chanae.2 Siailarly, th PIC'1 priaary aia 11 to e1tablish a 1tron1 indi1enou1-ba1ed coaputer capability. The leader1hip, from Preaier Zhao Ziyana on down, see, increaaed coaputerization as a nece1aary prerequiaite to attaining deaired advances in 1cientific re1earch, induatrlal productivity, national coamunication1, and defenae capab111tie1, eapecially regarding strategic weapons pro1ram1. Thia high level of aupport is aanife1ted in increased inveatment and related funding for indigenous computer R&D prograa1, modernization of key manufacturing facilitie1, and training pro1raa1 in all segment, of the education system. A1 of the end of 1985, China had approximately 300,000 computer, in place.3 Mainframes and minicomputers accounted for 2siaon Nora and Alain Mine, The Computerization of Society (Cambridae: MIT Presa, 1980). JThi1 total includes single-board and 8-bit computers as well a1 mainframe,, mini-, and microcomputers.

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5 about 1.000 or 10 of thi1 total.4 letveen 1983 and 1985, the nuaber of aicrocoaputer1 increaaed by almo1t 600%, growing from about 40,000 to over 250,000 during thi ahort 1pan of tiae. The doainant field of uae vaa in computation in re1earch and en1ineerin1. accouatiDI for 60% of the uaer rate. In contraat. by early 1984 there were vell over 2 million microcoaputer1 in uae in the us. with the doainaat u1er1 (a1 aea1ured by relative 1pendin1) beia1 the banking. ia1urance. and buaiaeaa 1ervice1 indu1trie1.5 Since the iapleaentation of the 10-called open door policy. the ao1t reaarkable feature of China' computerization experience haa been the rapid growth of iaported coaputera. eapecially aicrocoaputera.6 One eatiaate suggests that such iaports grev from 4.500 in 1983 to 105.000 in 1984! Only about 5.0% of these iaporta. however, were acquired aa final product unita; the majority vere brought into China via Hong Kong a, aaaembly kit due to the structure of China' a import duties at the time and Weater.n controla/delaya on the export of the technology embodied 4Thi1 fiaure coaea from Li Xianglin, director of the office of the Leading Group for Electronic under the State Council. See computer Brave All Walk of Nation' Life, China Daily, June 6, 1986. 5toa Poreater, ed., The Information Revolutio4 (Cambridge: MIT Prea,. 1985). 61ntereatin1ly, the use and import of computer, appears to be geo1raphically di~persed throughout the country--though it doea appear that the key coastal are,.s have been able to respond to import opportunities more rapidly becauae of foreign exchange availability.

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6 in aany of th aachine1 7 In large part, it 11 the iaaediate di11ati1faction with the arowina dependence on iaport1 coabined with concern about exce11ive expenditure of foreign exchange that have driven the pu1h to build up iadi1eaou1 R&D and aanufacturtn1 capacity. Current developaent effort au1t al10 be 1eea a1ain1t the backdrop of China' pre-1978 experience vith coaputer a&D and production. The hiatory of coaputer developaeat ha1 been characterised by uneven perforaance, with 1eriou1 probl of aachiae coapatibility and 1oftware generalizability. The Chin produced their fir1t electron-tube coaputer (103) in 1958; the fir1t tran1iatorized coaputer1 (109B, 441B, 121, and X-2) appeared in the aid-l9~o The onset of the Cultural Revolution, however, dealt a aevere 1etback to coaputer developaent at a time when the Weit vaa just starting to catapult ahead. Nonetheleaa, by the early 19701, the first aerie of coaputera with integrated circuit technology appeared (111, 112, 150, and 655). These achievements were attained by a all, selected group of 1pecialista working, in many caaes, without the benefit of a strong R&D support network. 7According to officials at MOFERT, in January 1985, a new set of iaport duties vent into effect. For machines above the 32-bit word length, duties range from 10-12%; the rate for spare parts for theae machines runs 7.5-10%. For machines below the 32-bit level, dutiea ranges from 50-70%; the duty on spare parts for th machines 11 between 30-40%.

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7 The aileatone in China' coaputer developaent occurred in 1973 with the introduced of the fir1t 1erialized aachin the DJS-100 1erie1. Modelled after the NOVA coaputer developed in the US, the DJS-100 aeri11 ezpanded to include a nuaber of different aodel1 capable of tin1 the need1 of a variety of uaera. In 1neral, th aachim were auch 1lover than their We1tern counterpart and lacked auch of the aoftvare to aupport wide1pread u About the ti, the DJS-200 1er1 al10 appeared, aodelled after the IIN-360 aeri While a nuaber of aachinea were produced, they never really attained the level of perforaance aaaociated vith the IBM. While 10 of th chine were hand tailored to ~t the need of special end-uaers, auch the PRC defen aector, they never entered large-cale aerial production. In e1aence, the aoat serious Chin 4ef1c1ency 11 that they have been able to produce many one or tvo of a kind aachinea, ao1t of which are of the stand-alone variety, but have never been able to move ahead into the stage of large-acale production due to apecific technical shortcomings and a host of political probl (See Chart 3) The objective of developing a technologically advanced coaputer induatry is to be auppor~ed, in large part, by the concerted effort being aade to improve the quality of China's domeatic aeaiconductor and electronic components induatry,8 &see state Council Urge January 11, 1985 tran1lated in Sea alao Wang Yangyuan, on Priority for Electronics, Xinhua, FBIS-PRC, January 11, 1985, p.K25. the Technical Targets China'

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8 1ncludin1 ral lar1e proara to perfect larae-acale inte1rated circuit in both the ory and lo1ic areaa.9 There are 17 major eaterprl1ea in China en1a1ed in reaearch and production of intearated cir~uita.10 Lov yield and poor reliability have been aajor probl pla1u1a1 China' IC induatry. At preaeat, alaoat all the aanufacturera of key coaputer1 in China rely eztenaively on iaported cbipa, etc.11 leco1nisin1 that bactvardneaa in aicroelectroaica baa been a aajor obatacl to further coaputer deelopaent, enbanceaent of exiatin1 capabilitiea 1 nova high priority elnt of the country' overall coaputer developaeat atrateay.12 Intearated Circuit Should leach in the 19901, Ji1uaaji Shl~ie, 19, Nay 8, 1984, p.3 tran1lated in JPIS-CST-85-017, June ii, i 85, pp.90-92. 9coaputer1 are alao an iaportant ingredient in the developaent of aicroelectronica in China. For ezaaple, an intelligent analyai1 and de1l1n 1yatem for integrated circulta was recently developed by the In1titute of Autoaation and the In1titute of Netalluray under the CAS. With the help of a coaputer, the technology of artificial intelliaence, pattern recoanition, and IC deaign can be combined to analyze coaplex circuitry, and deaign and ~erify layouts. China Daily, March 19, 198t. lOMicroelectronica Induatry Makes Bia Connection,, China Daily, April 7, 1986. ll!ven among the memory chip and microproceaaora that are domestically produced, the majority are modelled after existing foreign models. A nev single-board microcomputer (TWS 0600) developed at the Tianjin In1titute of Computer Technology, for example, u1e1 the Motorola MC6800 (with 1ome modifications) aa its central processing unit. 12tn late 1985, China' fir1t 3-micron 16-K 1tatic 1AM circuit wa1 produced by the Inatitute of Microelectronics at Qinghua Univeraity. SIAM are key elements 1 microcomputers and automated equipment. China Daily, October 26, 1985, p.3.

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9 c. Structure and Or1ani1ation Or1aniaationally1 the coaputer induatry 11 dominated by the Kiai1tr1 of llectronic1 Indu1try1 which 1upervi1e1 8 reaearch iaetitut 130 aanufacturina faciliti for coaputer1 (83) and peripheral (47)1 and 13 application unlt11 with a total of 1071000 worker, and 1taff--out of which pprosiaately 16,300 are reeearchera, technician and en1ineer1. Th MEI ha1 direct adainiatrative control over 17 of the aanufacturin1 unit1, while

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Naae Selected IC R6D and Production Unit in China Location Don11uan1 1878 factory leijiDI 12 Seaicoaductor factory leijiDI 13 Seaicoaductor Factory llectronlca factory 1871 L1abaa Nicroelectroaica factory Shaa1hai Coapoaeat Factory 15 Shaa1hai Radio factory 114 Shaa1hai Radio factory 119 Jian1nan Seaiconductor Factory Tian1uaa1 Seaicoaductor Factory Chan1zhou Seaiconductor Factory CAS 1109 factory Inatitute of Netalluray, CAS Inatitute of Seaiconductora. CAS In1titute of Microelectronics Qin1hua Univeraity Inatitute of Microelectronic Fudan Unlver1ity ....... leijin1 leijln1 leijia1 Shaozin1 liaa Shanahai Shanahai Shanahai Wuxi Ganau Chanazhou Beijin1 Shanahai leijin1 Beijing Shanahai 10

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11 th reaainina on are under 10 fora of local and/or central control.13 Within the Mil, direct re1pon1iblllty for management of coaputer-related aatter1 belon11 to the department of the coaputer lnduatry, vhlch la the former State Adminl1tratlon for th Coaputer Indu1try. (S Chart 1) SACI va1 originally e1tabll1hed ln 1979 to unify th aanaant of 16D, production, and aarketina of coaputera on a natlonvlde 1cale. It va 1 incorporated into the NII a1 part of the Hay 1982 bureaucratic refor The director of the coaputer department l Liao Yumina. Alona vlth NII, veral other aini1trle1 play a key role in coaputer developaent and application. The tvo mo1t important are th Nini1try of Space Induatry (apace and veapon1 pro1raa1) and the Mlni1try of Machine-lulldlng Indu1try (lnduatrial application,). In addltf on, there are 5 1peciallzed computer in1titute1 within the Chin AcadY of Science, ( e.g. Inatltute for Coaputina Technoloay in Beijing, In1tltute of Computer Appllcatlon1 in Chenadu, etc.). Their major focu1 11 on baalc de1l1n, computer architecture and 1oftvare develnpment. Several of China' aajor univer1ltie1 al10 play an laportant role in coaputer developaent, lncludina Qlnahua, Bel Jing, Fudan, and Shanahal Jiaotona. 1 3 Out of t h to ta 1 nu be r of fa c 111 t 1 19 f 11 1 n to th cateaory of ar1 and medium, vhll 111 fall into the ,aa11 cateaory.

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12 Sittina abo th variou1 organizations is the State Council apecial leading group for electronics headed by Vice Preaier Li Pena--vhich ha overall re1ponaibility for developing and coordinatina China' national computer strategy. Thia leading arnup, which va1 re-organized in 1984 after a somewhat inau1piciou1 1tart under the direction of Vice-Premier Wan Li, rel1 on input froa key a1a11terial representatives from the ciTilian and ailitary 1ector1 a1 well a1 an advisory group of about 10 coaputer 1pecialiat1 fro leading uaiveraities and reaearch in1titute1 around the country.14 While the leading group do not have a apecific budget for project purposes, it works directly with the State Planning Commission to ensure that 1ufficient fuad1 are available for key projects. Its emergence is highly significant because of its mandate to provide overall policy auidance aad cro11miniaterial coordination in an industry where both have been 1everely lacking in the past. Along with the State Council eading group, the State Science and Technoloay Coaai1aion, the State Education Commission, and the State lconomic Commission also have substantive reaponaibilitie fnr helping to f~rmulate China's informatics ,olicy and manage the country' computer development. (See Chart 2) Th national level or1~nization1 are complemented by a 1erie1 of provincial and municipal commiaaiona and corporations 1 4oeni1 Simon and Detlef Rehn, understanding China's ~lectronica Induatry, China Bu1ine11 Review, March/April 1986.

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13 for manaant of local computer development and applicationa. Three citi atand out in this regard: Beijing, Tianjin, and Shanghai. Shanghai municipality, for e~ample, has ita own "local level leading group for electronic and computers.15 I~ addition, in 1984 the Shanghai Computer Corporation was created as a separate entity under the aegis of the Shanghai Economic Coaaiaaion to aanage coaputer aanufacturing, l&D, software developaent and application in the city' variou induatrial and coaaercial facilitiea.16 A nuaber of organization are involved in the buainesa of managing the PRC's computer importa. One primary organization is the China National Electronics Import and Export Corporation (CEIEC), which is an independent corporation operating within the Ministry of Electronics Industry. The CEIEC baa a number of branchea throughout the country, e.g. in Shanghai--though its principle role ia to act on behalf of MEI and other central ministries. The Ministry of Foreign Economic Relations and Trade, operating through the China National Technology Import Corporation, Inatrimpex, and China National Machinery ImportExport Corporation also plays an important role--though ita level lSA number of miniatrie1 alao have introduced their own eading group for computer technologJ, applications, and atand11rd1. For example, the Mini1try of Railway formed auch aa group in mid-1983 aa part of it1 efforta to better coordinate and provide guidance for computer utilization. Jiauanji Shijie, 113, July 5, 1983, p.l. 16Renain Ribao, June 29, 1984, p.J.

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14 of activity had diminished in some respects due to trade decentralization and the emergence of import/export firms under the respective functional ministries. Various organizations are involved in importing computers and related equipment for the Chin 11ilitary, including the Northern Industries Corporation (NORINCO), Poly-Technologies, Milky Way Company in HK, Xinshidai Corporation, Poly-Technologies, and Great Wall Corporation. For ezaaple, NOI.INCO is now in the proceas of preparing a plan to import a computer-aided design and manufacturing center for heavy truck development. The Oriental Scientific Instruments Corporation acts on behalf of the Chinese Academy of Sciences as its primary computer import arm. Interactions among computer users as well as the R&D com11unity involved with computers has been facilitated by the creation of the Chinese Computer Federation in March 1985. Prior to this date, the CCF was a professional society under the Chinese Institute of Electronics.17 The aim of the CCF is to develop computer science and techno~ogy in China, promote the application of computers, and to stimulate the growth of the local computer industry. The ccr has 11 professional committees, eight professional groups, seven working committees, and an office to handle day-today affairs. As of January 198b there were over l7see Dianzi Jisuanji Dongtai, #6, 1981, p.64 translated in JPIS 78836, August 26, 1981, pp.1-4. -

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15 151000 bera. The CCP baa relation vith the coaputer aocietiea of 28 province. citi and aunicipalitiea. D. China's Strategy for Coaputer Development China' atrategy for developing ita coaputer industry baa been an evolvin1 one1 heavily influenced by a coabination of doaeatic political aa vell aa technological and economic factors. In addition, conaiderationa of self-reliance and technological dependence have alao played a role in the definition of an overall atrategy. though it auat be acknowledged that great uncertainty has existed in the past and vill continue to exist in the future regarding the balance between foreign iaporta and indigenous efforts. In early 1982, the Chinese leadership al:"ticulated a blueprint for coaputer developaent which would catapult China by 1990 to the aaae technological levels achieved in the advanced developed countries in the early 1980a.18 Thia waa a very ambitious target given the fact that China's coaputer design and manufacturing capabilities have been considered by moat foreign experta to be 7-10 years behind those of the US and Japan. Total computer output waa designed to triple by 1990, reaching an annual production capacity of 1.aoo large and medium computers !!!! 401000 micro and single board computers. The role of foreign technology. 18The description of these goals was provid'ed by Li R.ui1 former general aanager of the department of computer industry under the MEI. See "Computers in China1 Summary of World Broadcaata/Far East (FE/Wl201/A/13), November 101 1982, pp.13-14.

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16 althouah aaaigned an important place in the strategy, was clearly viewed vith a large do1e of caution. According to one former MEI official, our consistent policy is too rely on ourselves, and at the saae time learn from the advanced technology of foreign countriet. if we blindly import(edl computers, we would have to 1pend billion of dollars before widespread uae of computers in China waa achieved. In both 1983 and 1984, major nation-wide conferences were held to further map out the appropriate course for computer developaent. At the 1983 meeting, a decision was aade to give greater emphasis to micro and minicomputers, reflecting the increased appreciation of the potential role of computers in industrial management and production, engineering design, etc.20 The strongest imperative for progressing ahead in computers, however, began to appear in late 1983 as discussions about the new global technological revolution" began to sweep China. At a January 1984 symposium sponsored by the China Research Society on the Futu~e, Ruan Xiang cited computers and knowledge-intensive industry as the keys to China's ability to catch up with the West. some new rising industrial countrie, are beginning to devote attention to arming themselves with the application of computers. Brazil in South Anerica is doing so. India is also promoting computers as a major component of its national construction planning. South Korea has 19summary of World Broadcasts/Far East (FE/Wl201/A/13), p.14. 20conference on Computer Development Enda, FBIS PRC, August 13, 1983, K.15.

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alao worked out a 10-year development plan for the coaputer. The coaputer 1 developing fast in Sin1apore Taivan--a part of China--haa concentrated fund on developing microelectronic technology and ha founded the Xlnzhu Science Area. Hong ~ong induatrial circle have 1uggested the foundln1 of a development center for computer tech nology. T are all otla1 -jor afforta to Mlo,1a1 tec,aolo11-iateaale lCrl are ea1 la rearraa1l tlr ecoaoa1 Tl tr caaaoe e aro oar coacera atteatloa.Zl 17 At the Pebruary 1984 conference, the eaaential eleaent of the currant coaputar devalopaant strategy began to take 1hape. rocusina on the laat 2 year of the Sixth Five Year Plan, Jiang Zemin, former Minister of the MEI (and currently Mayor of Shanghai), atated the following objective,: 1. ve vill concentrate our efforts on building a technological baais for the microcoaputer industry and raise our ability to produce complete equipment. We vill energetically develop the production of 8-bit computers, 16-bit computers, and a general system for microcomputers to form several assembly and adjustment line for microcomputer sets. 2. ve will energetically raise the percentage of China-made components and parts used for manufacturing microcomputers and foe~ our att~ntion on making China-made circuit boards. 3. we will pay close attention to the construction of three computer industrial bases of north China, south China, and east China and to forming combined service bodies for computer research and production to create favorable conditions for rapidly developing the computer industry in the Seventh S-Year Plan period. 4. To develop the electronics industry, we should centralize financial and material resources, pay special attention to key points, expand foreign economic exchanges, introduce advanced 2 1auan Xiang, catch Up with the Industrially Advanced Countries, Guanamina Ribao, March 2, 1984, p.4 translated in JPIS-CST-85-013, Kay 1, 1985, pp.10-12.

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18 technology, etrt to rat oar ab1llt7 to ataad oa oar owa feet to bl a trail la tbe electroaica ladaatry. F~r the rest of the decade (1986-1990), c:hina'a strategy for develoving it coaputer industry will continue to contain many, if not all. of the point apelled out in 1984. For the moat part. China' primary focu 1 on the linking together of electronics and inforaatics developaent. The centrality of thi thrust was eatabliahed in January 1985 in a apeech made by Vice-Preaier Li Peng.23 According to Li. the emphasis of development of the electronics industry will be shifted onto the courae of developing microelectronics technology as the foundation and computer and telecommunication equipment 2 the main body.4 Li's speech is significant because it reflects the realization among the leadership of two key points: l)that there la an integral link between the electronics, informatics and communications industries--the latter two which cannot develop without significant progress in the case of the former; 2)that there must be a greater degree of synergy between indigenous programs 22Minister Jiang Zemin on China's Developing Electronics Computer Industry, Zhongguo Xinwen She. February 21, 1984 translated in FBIS PRC, February 28. 1984, pp.K8-9. 23ti Peng, Electronics and Information Industries Sh~uld Serve the Four Modernizations, Xinhua, January 13. 1985 translated in FBIS-PRC, January 15, 1985, pp.K20-24. 24FBIS-PRC, January 15, 1985, p.K.25.

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19 and forei1n iaporta.25 Th~ th were repeated again by MEI head Li Tieying, in his announcement of the development goals for China' electronics induatry in the 7th Five Year Plan.26 Int.er of specific types of computers, development of aicrocoaputera, which are regarded aa the most suitable in term of prevailing production capabilities and potential applications, will continue to be eaphaaized. Technologically, the Chinese have been able to develop and produce 8-bit and single board computers, many of which have been modelled upon existing Western machines. They have also been able to develop and manufacture on a limited basis 16-bit microcomputers; here again many of these machines resemble Western equivalents such as the IBM-PC/XT. (In the area of imports, the Chinese have shifted away from purchase of almsot all 8-bit machines and many types of 16-bit computers since they are now able to produce varieties of both machines on their own.) The development of mainframe computers (and super computers), which experienced serious problems in the past, is now entering a recovery stage in terms of the overall strategic orientation of 25ror an earlier commentary on this latter point see Ge Zhangi, "A Discussion of the Countermeasures of the World' a New Technoiogical Revolution and the Foreign Trade of China's Electronics Industry," Guo'bi Maoyi Wenti, Sept-Oct 1984, pp.6-10 translated in JPRS-CEA-85-0 4, January l6, 1985, pp.48-55. 26Li Tieying, "Continue the Reform, SpeeJ Up the Development, and Actively Invigorate the Electronics Industry," Zhongguo Dianzi !.!.2_, January 21, 1986, p.l. See also Zhongguo Dianzi Bao, December 31, 1985, p.2.

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20 the induatry.27 Thia ia beat exemplified by the attention being given to the 757 computer (10 mipa) designed and produced by the Chinese Academy of Sciences and the Galaxy (100 mipa) designed and produced by the National Defense S&T University in Changsha, Hunan .28 l decision vaa made in late 1985 to designate Beijing, which vas chosen over several other cities, including Shanghai, as a apecial alt for mainframe computer development. According to the !DP China Report, an R&D-production complex will be establiahed, built around the following key inatitutiona: The Beijing Wire Coamunications Factory, the North China Computer Reaearch Institute, the CAS Institute of Computer Technology, 27ror an analysis of China's use of computer-aided design technique, to develop large computers see Liu Shenquan, use of Computer Aided Design in the Development of a Large Computer, Jiauanji Yanjiu Yu Fazhan (Computer Research and Development), Number~. March 1983, pp.l-7 translated in JPRS-CST-85-010, April 17, 1985, pp.48-57. Among the limiting factors cited by Liu in the use of advanced CAD techniques ,in China are poor quality peripheral,, the small capacity of magnetic -iisk.s, absence of plotters and graphic input devices, and lack of interactive systems. 28nased on information obtained in Beijing in January 1986, it appears that at least two (2) Galaxy machines have been built, one that is being used by the Ministry of Petroleum Industry and one that la still in Changsha being used by the PRC defense community. There alao la aome evidence to indicate that three other machines have been developed as part of the Galaxy project: l)Galaxy Fl-which la a digital computer for simulation; 2)Galaxy Xl--which is a super minic,.,mputer; and 3)Galaxy Yx-21--which is a digital bionic computer (fangsheng jisuanji). Significantly, it was asserted that approximately 90-95% of the integrated circuits and related components used to build the Galaxy were imported from abroad. Similarly, the 757 compute?', which initially used a magnetic core disk for memory storage and relied solely on domestic components, is now being re-built using imported integrated circuits for both logic and memory functions. As a result of these improvements, the operational speed of the 757 will be increased from 10 to 30 mips.

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21 Beijing Univerity, Qinghua Univerity, Beijing Computer lnduatry Corporation, and the Beijing Information Engineering College.29 The baaic orientation in terma of deeign--which has been dictated by conaiderationa of standardization, software compatibility, and networking needa, vill be to emulate Western models produced by such prominent fir aa DEC, IBM, and Control Data Corporation. Thia vill enaure that domestic built machines can effectively interface vith many, if not moat, of the computers that have been iaported over the last several years. Nonetheless, ..,ti!ile mainframe development will be given additional capital investment and support, it appears likely that the stress on development of microcomputers will continue during I, ), the rest of the 1980s, with increasing emphasis placed on domestic production of both components and complete machines.(Table 2) There is also some evidence of a growing interest in minicomputers because of their price-performance ratio compared to large mainfra111es. One driving force behind the concentration on microcomputers, and ore recently minicomputers, 1 the shift away from stand alone machines towards more networking both within and between organizations as well as the growing emphasis on application of computers in industrial, management, and office 29seijing Area Chosen to Manufacture Mainframe and MediumScale Computers," EDP China Report, Volume 4, November JO, 1985, p.18.

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22 aettin1a.30 In thi1 regard. China hope to gradually, though 1teadily, approach the current breadth of We1tern uses as well as quality level and procea1in1 capabilities by the 1990s.ll Coaputer Application, in China (By the nature of the end-u1er) Sector Indu1try/Tran1port Science/lducation Coaaerce/Pinance Culture/Real th Agriculture Other .. ,., ~-% of Units 61.2% 17.0% J.4% J.4% 2.5% 12.5% Source: Coamercial Section. US Embassy, Beijing, China. 1986. 30In mid-1095, the State Economic Commission inaugurated a program in cooperation with the Chinese Enterprise Management Association to run a aeries of training courses on computer use for managers and factory directors in 3,000 key industrial firms. "Managers and Directors of 3000 Large and Medium-Sized Enterprises Will Be Trained for Computer Knowledge in June," Jingji Ribao, March 1. 1985. p.l. llror an overview of microcomputers in the West see the ape~ial isaue of Science, February 28, 1986, pp.935-978. In order enaure quality levels. MEI will require local microcomputer manufacturers to apply for permits before they can produce machines. Each factory must undergo an inspection and paaa a certain technical level to qualify for a permit. Each permit will be good for three years. To be considered for a permit, the factory must have a quality control management system. it must be able to certify a MTBF on components of more than 1000 hours, and it muat offer maintenance, service and application assistance. EDP China Report. March 15, 1986, ppp.144-145.

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Application of Mini & Mainframe Computers in China Application Artificial Intelligence/CAD Scientific Calculation Data Proce11ing Proce11 Control % of Units 33.2% 20.6% 27.7% 18.5% Source: Coaaercial Section, US Embassy, Beijing, China, 1986. 23 Tianjin ia key one city where the current national 1trategy haa been implemented aucceaafully, albeit partially and quite gradually in some caaea, and where Oi~rall computer development and application appears to have responded well to the directives coming out of Beijing. The rise of the local computer industry has been spearheaded by the R&D work of the Tianjin Institute of Applied Computer Technology, which played an important role in the development of the DJS-153 minicomputer!!!_ the Tianjin 12 Radio Factory.32 With ita over 6000 person workforce in the computer industry, Tianjin has been able to popularize the use of microcomputers throughout all facet of industry by re1ponding to end-uaar needa.33 For example, in early 1984 the Tianjin Institute 1ucce11fully trial manufactured the DJS-155-1 digital 32Yang Mingbiao, cooperation Between Electronic Computer Institute and Radio Plant #2 on Microcomputer Development and Application,, Tianjin Ribao, November 29, 1983, p.l translated in JPRS-CST-85-013, May 1, 1985, p.65. llTianjin' Popularization of Microcomputers Gains Succe11ea with 632 Sets Used in More than 30 Fields of Industrial Management, Tianjin Ribao, January 10, 1984, p.l tranalated in JPRS-CST-85-013,. May l, l985, pp.60-61.

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24 coaputer. a ru11edi1ed and iaproved ver1ion of the DJS-153. lecau1e it po antl-1hock characteri1tic1. it 11 1uitable for in1tallation on 1hlp1. in vehicle, etc. In addition. city leader, have been able to u1e the advance, of the indu1try to orcoae local he1itation and lack of knovled1e about the u1e of coaputer,.34 One aajor 1ucce11 in thi1 area vaa the 1ucce11ful application of a aicrocoaputer to the di1tributor 1y1tea of the Tianjin 12 Cotton M111.35 1. Con1traint1 and Pro1re11 in Coaputer Developaent and Application The aajor con1traint1 in e1tabli1hing an advanced Chin computer indu1try fall into four categories: l)maoufacturing capabilitie1; 2) peripheral equipment; 3) technical per1oonel; and 4) aoftvare.36 Technique, for aa11 production of final products 34oevelopment1 in Tianjin have benefitted froa the strong 1upport of the local S&T and economic commi11ion1 as well a, from expo1ure to foreian machine, and technoloay. In this latter regard, the Tianjin In1titute of Computer Technoloay utilized J~pan de1i1n1 a, vell a, the Motorola 68000 micrnproce11or to develop the TWS 0600 sinale-board aicrocoaputer. Tianjin Ribao. January 12, 1984. p.l translated in JPRS-CST-85-013. Hay 1. l9859 p.79. 35succe11ful Teat Run of a Hicrocomputerized Distributor. Tianjin libao. December 25. 1983. p.2 translated in JPRS-CST 850l39 May l, 19859 pp.68-69. 36rinancial con1traints are al10 a problem. though not a, 1eriou1 a1 in other field,. During the Sixth Five Year Plan. the central 1overnment inve1ted 5.0 billion yuan in the computer indu1try, which constituted 0.9% of the central government' total inve1tmant in fixed a1set1. Approximately US$ 1.0 billion vent for computer import, during thi1 same period. China Daily. April

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25 a, well a coaputer coaputer1 are rely lackln1 ia China. Even thouah advanced coaponenta are beln1 developed lo the laboratory, aany factorl lack the nece11ary production equlpaent and aana1erlal know-how to produce th lt ln 1ufflclent quantltlea and at neceaaary rellablllty levela. A good ezaaple of bow th abortcoalnaa can affect the developaent of a 1peclflc aacbln involve the caae of the DJS-186, a 16-blt alnlcoaputer alallar to DIC'a PDP-11 aerlea. The DJS-186, who developaent beaan in 1978, experienced nuaeroua probl becauae the delivery of doaeatic-aade IC1 dld not aaterlallze and iaport1 bad to be u1ed inatead and continued uncertainty over which factory waa 1oln1 to take over aanufacture of the prototype.37 Relatedly, the Chin reaaln unable to aeet the growing need1 of computer u1er1 ln ao1t fcet1 of peripheral,, aalnly becau1e they are lackln1 in both technoloay and aanufacturing capabllltl Thia la particularly true regardlnr lt 1uch aa dl1k drive,, printer~, and aonitor,. For example, while places 1uch a, Taiwan and South Korea have been able to pu1b forward on aoaitor developaent becauae of their achleveaent1 ln black & white/color televialon1, China ha1 not been able to rely on 1uch a technolo1lcal foundation to aove ahead ln thl1 area. 10, 1986, p.2. 37s. Jacob1on and Jon Slgurd1on, Technoloaical Trend and Cballen1 in !lectronlc1 (Lund, Sweden: Re1earch Polley In1tltute, 1983), pp.249-289.

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26 In teraa of peraonnel, while the Chinese have set out to train a aubatantially lncreaaed number of computer scientists, engltat.'lrs, and prograaaers, the fact remains that they still do not have a broad baae pool of experts to support a full-fledged national effort throughout the country.38 Aa of the beginning of 1985, there vere 89,800 person employed in China's computer indu~try, 15,300 of which can be described aa technical workers; by aid-1986 that total nuaber grev to over 107,000.39 Trainlna ls an important aspect of China's computer development drive. A good example of one of China's better coaputer science programs la the one at Nanjing Univeraity.40 Initially part of the mathematics department when it was established in 1958, it formally became a department in 1978. There are 54 faculty members in the department: 2 full professors, 7 a 1 tan t p r o f e o r a 3 7 le c tu r' e r and 8 t ea ch i n g a s s i s t an t s Aa of the early 1980s, there were approximately 600+ undergraduates, 20 postgraduates, and 8 advanced students in the 38Accordina to one official at Beijing University, the ratio of aoftvare and hardware personnel is 1:4 while in moat advanced nations it is 3: 1. Chen Yifan, Urgent Need to Train Qualified Personnel for the Computer Industry, Guangming Ribao, March 3, 1984, p.2 translated in JPRS-CST-85-016, Hay 23, 1985, pp.23-24. 39the diatributlon of the technical workforce is also a problem: over 28,000 of China's computer experts are in Beijing. Thi number la similar for Shanghai, leaving the rest of China with a aevere shortage. China Dally, January 18, 1986, p.2. 40wen Youxin, Report on Nanjing University's Computer Science Department, ~aojiao Zhanxian, No.4, April 1982, pp.25-26 tranalated in JPIS 82183, November 8, 1982, pp.57-60. -

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27 departaent. In addition, over 800 students froa other parts of the univer1ity were given training through courses in computer science offered by the department. All together, about 35 courses of in1truction are offered. The departaent haa also been steadily involved in national coaputer developaent efforts, having coapleted 13 national and local level projects, eight of which have filled gape in China and six of which have von awards. Through work on the1e projects, it has formed cooperative relationahip1 with a number of key production units, including the Shanghai #13 Radio Factory, the Changzhcu 12 Radio Plant, and the Nanjing #734 Plant. Faculty and students from Nanjing University have been sent abroad to study computer science. Prograaa such as the Computer Science Department at Nanjing University have sprung up through out China's higher education syatea. The US$200 million education loan given to China by the World Bank in 1982 has helped facilitate the purchase of equipment and the introduction of higher level courses dealing with computer programming, languages, etc. These advanced programs are compleaented by a broad baaed effort to introduce China's younger students at the elementary and high school levels to the role of computera.41 In both respects, the Chinese have gone far beyond the Soviet Union 10 far in trying to apr.ead computer literacy 41s~m of these program are being supported by the local science and technology association. See FBIS-PRC, February 28, 1984, p.Pl.

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28 througho~t the country.42 Yet, while education programs, including ones such as the computer education proj~ct supported by the World Bank and the Beijing Computerland Institute, are a step in the right direction, Chinese officials acknowledge that they still remain inadequate in terms of meeting current and projected future needs for a wide range of computer literate technicians. According to one estimate by an official from the MEI's State Computer Administration, at least 100,000 trained specialists are needed in research and production, while an additional 500,000 will be needed as computer operators by the 1990s.43 With respect to computer software, substanti~l progress does appear to have been made in the development of Chinese character input systems as well as softwa~e.44 So far, four primary computer input systems exist for use of Chinese characters: l)cang jie system (developed in Taiwan and Hong Kong): characters are entered by pressing l to 5 English language letters; 2)three corner system (developed at Wang Labs): all characters are reduced 42see NSoviets Launch Computer Literacy Drive,w Science, January 10, 1986, pp.109-110. Th article reports that high school students in the USSR. are being taught computer basics without machines; the Soviet Union has yet to develop and mass produce a serviceable domestic personal computer. 43china Daily, April 10, 1986, p.2. 44In the case of the former, there are somewhere around 400 different systems in China for inputing Chinese characters. Two interesting approaches using wpinyinw were recently developed by researchers at the Science and Technology Bureau of Nanyang Prefecture in Henan and the Guangzhou Institute of Electronics Technology in Guangdong respectively. China Daily, July 11, 1984.

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29 to roughly 100 radicals and are entered by typing in codes for each part of the entire character; 3)pinyin system: English letters are used for romanized characters; and 4)dragon system: which is based on telegraphic code numbers that are contained on a large keyboard. PRC computer specialists have developed a number of similar and complementary systems for working with Chinese characters. In mid-1985, for example, a computerized Chinese-language information storage system was introduced by the Beijing Teachers University. It can automatically process any Chinese language information into corresponding key word and phrase data banks, print out lists of word usage frequency, edit, and compile word entry indexes. A national university computer software center was established in Beijing through the Ministry of Education in early 1984 to offer technical services to various local and national level organizations.45 A few months later in the same year a national software industry association was also established to share information on research projects in the software area.4 6 Relatedly, in late 1983 China's first CAD system for exterior car body design was produced through the joint effort of the Shanghai Tractor and Automobile Research Institute and the 45Education Ministry Holds Software Conference, FBIS-PRC, March 20, 1984, pp.Kl7-18. 46softvare Industry Association Established, Xinhua, September 6, 1984, p.KlS-19.

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30 Institute of Mathematica at Fudan University.47 And in early 19869 China's first comprehensive software package called "The Software Package for Modern Digital Signal Processing." was introduced by the Northern Jiaotong University in Xian in conjunction with five other institutes in Beijing. Shanghai, and Xian.48 The package covers a total of 42 programmes ranging from measurement statistics to modern spectral analysis. The city of Shanghai clearly has ambitions to become a leader in the developaent of software and to enter the world market as a key source of computer software.49 Shanghai Jiaotong University has been particularly adept at introducing all types of new and improved software into the Chinese market.SO Shanghai's strategy is to rely on a)its abundant labor force. b)its strong S&T and education base. and c) the availability of transport and communication capabilities to produce a low cost package of software.51 And consistent with this objective, the Software AG 47"China's First CAD System for Car Body," Jiefang Ribao, October 20, 1983, p.2 translated in JPRS-CST-85-038, November 5, 1985, p.68. 4800software and Money Aid Science." China Daily, April 11, 1986. 49Madelline Ross, "Shanghai's Push Into High Technology," China Business Review, March/April 1985, pp.36-39. 50see Shanghai Academy of Social Sciences, ed., Shanghai Jingji Fazhan Zhanlue Wenti (Shanghai: Academy of Social Sciences Publishing House, 19840, pp.133-142. Slsee "There Are Bright Prospects for Shanghai's Software Exports," Shijie Jingji Daobao, May 23, 1983, p.10.

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31 Inc of Tokyo ha been negotiating with the Shanghai Institute of Coaputer Technology to work vith a Chinese counterpart on software development and exports.52 However, in the paat, the problem of generalizability'" continues to be videapread ae a significant percentage of the aoftvare beina developed still tends to be machine-specific. In the paet, software developaent vas consider~d to be the achilles beet of Chinese computer development. Today, the introduction of several central government standards for software development53 as vell as the appearance of various organizations such as the China Software Corporation and the China Computer Users Association will help remedy a large number of these problems. 54 The latter organization, which was formed in March 1983, has numerous branches throughout the country.55 52Japan Economic Journal, July 31, 1984, p.15. 53As of early 1985 there were between 100-400 Chinese input systems under development in China. The State Council has set up a special committee to '"boil down the massive, often disparate work into a unified system for industrial production.'" China Daily, Business Weekly, January 29, 1985, p.2. See also China Daily, May 23, 1985. 54A good example of Chinese progress was the recent development of KCDOS, a Chinese-English operating system that runs on the IBM 5550. The 5550 is a multi-function microcomputer that can handle Chinese character inputs. (The Chinese would like to eventually manufacture in Guangzhou under the Huanan (East China) Computer Corporation.) The operating system was developed by the Institute of Computer Applications Research at Hunan University and a computer company in Changsha. All of the original software for the IBM PC and the 5550 can still operate using HCDOS. 55see FBIS-PRC, March 29, 1983, p.K7.

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32 In apite of the proliferation of computers, under-utilization remains a serious and widespread problem. The investment made in the development of application systems is unproportional to that aade in the developaent or import of basic systems. According to an EDP China report, uaers are usually only willing to pay for hardware and hand out money almoat grudgingly for software. The importance of researching and deaigning application systems is not yet widely recognized. 56 The problem is particularly acute regarding domestic maae machines. In fact, many questions remain about the future of existing lines of domestic computers, such as the DJS-100 aeries because of the realization that many of these machines do not meet international standards in terms of quality, type of operation, and/or software compatibility.57 According to aourcea in Beijing, 32,000 microcomputers were manufactured in 1985, while there were still 40,000 stocked in warehouses with no customers in sight.58 In addition, officials in the computer industry have suggested tha~ in Beijing municipality, for example, the utilization rate of installed microcomputer is only 26%, while the national average is in the 56EDP China Report, Volume 4, June 17, 1986, p.242. 57As suggested earlier, the DJS-200 has already officially been discontinued as of 1981-82. 58wcomputera Facing Glut in Market, China Daily, January 11, 1986, p.3. One source suggests that the number of stockpiled microcomputers baa decreased to 18,000 by January 1986. China Daily, April 10, 1986, p.2.

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33 range of 15-20%.59 The problem of poor utilization baa its roots in peraonnel shortages, though other key factors include organizational rivalry and intense bureaucratic jealousy,60 poor maintenance, limited software availability, and poor after-sales service.61 One estimate suggests that the Chinese will waste between US$20-$85 million over the next three years because of improper use and maintenance of imported computera.62 In some cases, enterprises have been ord~ced to have a computer without having the peraonnel to operate it or any idea about how to beat 59According to one source, a survey of 14,000 microcomputers in place in Beijing revealed that most are used less than three hours of day. seijing Has Future as Computer Capital,'" China Daily, January 18, 1986, p.2. 60see the case of the wrangling among the Kaifeng Computer Center, the local telephone bureau, and the Kaifeng #3 Hospital in Kenan province to appreciate the extent to which organizational rivalry plays a role in China. China Daily, April 7, 1984, p.3. 61There are approximately only 10,000 people involved in computer services in China. The creation of the China Computer Services Corporation in 1984 to handle 6 main functions: systems integration, technical training, data processing services, database supply, software development, and specialized services and consultation, is a positive step toward improving computer usage, though the numbers of people and their skill levels remain inadequate. Che'1 Livei, '"The Position and Role of Computer Services in the Computer Industry,'" Dianzi Xuebao, #5, September 1984, pp.65-67 translated in JPRS-CST-85-009, April 9, 1985, pp.57-61. 62sam Hove, '"China's High Tech Troubles,'" Nev York Times, May 5, 1985, p.F9.

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34 put the aachine to use. 63 These problems hold true to both domestic made and foreign imported computera.64 Political problems can also be pervasive in the computer industry. At the Hunan Provincial Computer Center, eight persona had to be dismissed from their posts because they lacked the akill1 to handle their particular aasignments.65 The Hunan center ia one of the key link in China' national computer network; its reaponaibilitiea include collecting, processing, storage, and exchange of economic information within and outside the province.66 Through a network of personal connections, high level cadres used their positions to secure jobs for their relatives and children. The center became known as a home for the lazy. At one point, of the 39 children of leading cadres above the rank of department directors, more than 60% (24 persons) knew little or nothing about computers. After numerous problems, 63problem of Idle Computers, China Daily, April J, 1985. 64ror a rather critical asses~ment of China's computer industry see Cary Lu, china's Emerging Micro Industry, High Technology, March 1985, pp.69-70. Lu cites lack of access and under1tanding of software, a dearth of qualified personnel, high coats, language problems, etc. as factors that have slowed down computer development and application. 65aunan Set to Curb Irregular Recruiting, China Daily, April 5, 1984. 66the center was completed in 1982. See FBIS-PRC, July 22, 1982, p.P6. 67china Daily, May 11, 1984, p.J.

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35 the situation wa brought to the attention of the provincial party committee for reolution. Even thouah the above-mentioned utilization problems are pervaaive, the fact remain that use of computers baa spread throughout the econoay and society. According to an official from the Mil, there were about 100 types of u for computers in 1980 (with moat computer being used for calculation), while as of mid-1985 there were 15,000 uaea.68 The Chinese have even gone so far aa to etabliah a computer dating ~ervicel In many cases, computer have been introduced in the form of industrial control ayatema, such aa i~ the Ministry of Machine-Building Industry (MMBI), where work on automation has rapidly proceeded forward over the last two years. There is a computer research center in the MMBI that has as its prineiple function the expanded introduction of CAD/CAM technologiea--though some of its efforts are b~ing held back by the lack of specialized components from MEI to support its development efforta.69 Moat important, the drive to introduce computers into industry and society has stimulated expanded interactions among 68computer Production Must Follow Demand," China Daily, April 101 19861 p.2. 69In some cases, because of the nature of prevailing export controls, the Chinese have been able to purchase the hardware for CAD work, but have been blocked from buying the accompanying software--a situation which baa, o~ the one hand, fostered poor utilization of imported equipment, but on the other hand, has stimulated ind~genous software development efforts.

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36 computer manufacturers and potential end-users. Given the gap that baa often existed between developers and users in China, this trend could be highly significant. For example, the Shaoguan Radio Factory in Guangdong, which ia a leading manufacturer of 8-bit and 16-bit microcomputers in South China, has transferred a number of its engineers and skilled workers to form an outreach/ales taaa for the promotion of microcomputer use.70 In addition, the factory has instituted user training classes, a lecture aeries, etc. China also has plans to boost development efforts in robotics--which is still in its infancy in comparison with similar efforts in Japan and the us.71 The Seventh 5 Year Plan contains provisions for the manufacture of industrial robots for paint spraying, point and arc welding, and cargo carrying.7 2 As of the end of 1985, China had more than 100 industrial robots and 1000 mechanical hands in place.73 Among China's 20 robot research institutes and development centers, the Institute of Automation of the CAS in Shenyang will be the site of a major robotics research and development center. 70Nanfang llibao, March 4, 1984, p.2 translated in JPRS-CST-85-014, May 2, 1985, pp.40-41. 7lzhang Chunfen, "Oevelopment of Industrial Robots for the Aviation Industry,'" Hangkong Zhizao Gongcheng, #5, May 1, 1985, pp.2-4 translated in JPRS-CST-86-001, January 17, 1986, pp.60-63. 7200llobots Set To Receive Boost in Development," China Daily, February 1, 1986, p.l. 73china Daily, November 13, 1985.

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37 Among the aucceaaful examples of effective application of computers are the following: a)eatabliahment of a computer baaed flood warning ayatem under the Ministry of Ministry of Water Conaervancy and Electric Power; b)formation of a computer center under the People' Bank to manage financil transactions; c)application of computer controls to boiler operation in thermal power atationa in Guizhou province; d)aafety analysis in power plant; e)aocial science data storage and,analyaia in the Chinese Academy of Social Sciences; f)eatabliahment of a computer center at the Daqing Oilfield to handle prospecting information and research work; and g)computer-aided architectural design, especially concerning earthquake-proof constructioa.74 Significantly, the Communist Party has also gotten caught up in China's computer revolution; the provincial party office in Shaanxi, with the help of the Liahan Microelectronics Company, baa introduced a computer a1atem for general management tasks. Thus, while problems abound, China has gone much further than, f~r 7 4Along with industry-oriented applications, the first computer station in rural China was set up in mid-1984 outside of Beijing. The computer station, which is run by a local township in Beijing municipality, is responsible for calculating the temperatures needed for growth of Mll aorta of plants, figuring out appropriate planting densities, determining adequate water allocation, for irrigation purposes, and calculating fertilizer needs and applications. It will also perform accounting tasks for the rural industry and a host of other scientific calculations regarding the amount of light and humidity needed by plants in local greenhouaea.

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38 exaaple, the USSR in allowing the root of t.he nev inforaation aociety to take hold.75 One area where aoae rather intereating work ha already been done deal with the atteapt to eatabliah a nationwide econoaic and S&T inforaation network linked through the China National Science and Technolo11 Center in leijina.76 A nuaber of the key coaatal citi (10) alon1 with the Inatitute for Scientific and Technical Inforaation (ISTIC) under the SSTC are the key organization involved.77 The Chin are atteaptin1 to draw upon Weatern data baae1 well aa create their ovn data retrieval ayateaa.78 P~ogre11, however, ha1 been impeded by China' poor comaunicationa infra1tructure, which have added a large element of i111ecurity and unreliability into the proce11 of data tran1fer and computer comaunication. By early 1985, for example, there were only 0.5 telephones per every 100 per1ona in China. Recent improvement, in 75Loren Graham, science and Computers in Soviet Society, in Erik Hoffmann, nd., The Soviet Union in the 19801 (Nev York: Academy of Political Science, 19840, pp.124-134. The Chinese have gone so far aa to e1tabli1h a computer leaaing and financing 1ervice to pr, 40te intereat in coaputers. In 1984, the China Bank of Indu1try and Coaaerce in Shanghai opened a leaaing agency for tho1e enterpri and government agencies that do not have sufficient fund1 to purchase computer,. 76tnformation Center Construction Starta, China Daily, September 24, 1984, p.3. 77According to Wang Tingjiong, director of ISTIC, there are more than 60,000 people engaged in inforaation collection, dissemination, and aervicea. China Daily, April 2, 1986. 78Nationvide Information Network Planned, China Daily, January 24, 1984, p.1.

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39 coaaunlcationa, obtained prlaarlly through technology and equipaent iaporta, aay help alleviate some of these problem in the near future. For the preaent, however, the existence of local area network aa well a dlatributed procesalng remains the ezceptlon rather than the rule.79 Suaaari1ln1, th probl of coaputer developaent and use in China are bein1 attacked froa a aultitude of directions. Coaponent aanufacture 11 being given higheat priority as the Chin k to mlniaize their dependence on foreign 1ourc for both coaponenta and final products, pclally in the aicrocoaputer area. Nonetheless, the emphasis on acquisition of coaputer manufacturing technology will persist, with a growing aphasia on minicomputers. Greater centralized control seems to be eaergina the need for standardization and quality control ha1 been recoanized. Application problem reaain and there is an in1ufficient number of qualified peraonnel on both the development and applications side. Thus, while substantial progres1 ha1 been, it reaaln unlikely, with some exceptions, that China will aeet it1 goal of attainina overall by 1990, Western technological and utilisation level of the 1980s in the field of computers. 79oae laportant exception in this regard vas China' ability to create a workable computer network throuahout portion of the country to store and procesa data for the 1982 national cenaua. countin1 to a Billion, Dataaatlon, March 1983, pp.183-185. Another exception 11 the LAN that has been planned for the Ministry of Electronics Industry. See Fan Xitian, et.al., the NII Or1ani1ational Manaant Network Systea,, Dianzi Jlshu Yin17on1, 12, February 25, 1985, pp.6-8.

PAGE 42

P. Role of Foreign Computer Import, and Technology since importing vaa emphasized in the 19801, China's computer induatry hat 1uffered a great blow. Importing 11 a correct policy, but how to organize import properly ha1 not been re1olved very well. Any unit can now arrange for it1 own iaporta, but what 1 being imported 11 moatly equipaent, not technology. Thia 11 not only vaateful, it alao hit1 doae1tic indu1trial pro duction and 1cientific re1earch work hard. Com puter planta are nov worried about their ovn production, aince the aore they produce the more they loo money In contraat, they make a lot of money by 1elling imported machine either vith a chan1ed out1ide appearance or by aelling them a1 aoon a1 they are imported There 11 a policy problea here. 40 In the attempt to modernize their computer industry as rapidly aa possible, the Chineae have continued to emphasize the import of technology and computers from abroad. Reliance on foreign ideaa and knov 11 nothing nev as far a1 China's computer development 11 concerned.al Beginning with the initial start-up of the indu1try in the 19501, China relied on Soviet technical 1pecification to launch its ovn domestic development program and, a1 indicated earlier, utilized IBM designs to initiate the DJS-200 80eov to Develop C.bina' Computer Industry, Guangming Ribao, April 2, 1984, p.2 tran1lated in JPB.S-CST-85-016, May 23, mr. pp.19-20. 8lrvo thinaa, however, 1hould be remembered in this context. Pir,t, electronic ha1 been intimately caught up in the 1ymbolic a1pect1 of China' political debate over the laat 1everal years, and therefore, by implication, computer development has been hi&hly politicized. Second, vtllin1ne11 to uae foreign technology to advance indi1enou1 computer development ha1 not meant total acceptance. In many ca1e1, local adaptation were introduced, e.,. aa part of the policy of 1inicization, which in many cases did little to enhance perfor~ance and frequently created operational and compatibility problems.

PAGE 43

41 aerie in the 1970a. In addition, foreign technical literature and data regarding computers and electronics has continued to flow into China throughout the last two decades--continuing even during the Cultural levolution.82 Moreover, during visits to any number of Chinese universities and research institutes, it quickly becoaes apparent that there is no dearth of information or journals regarding coaputer developaent in the West. Were it not for the availability of these published materials, as well as China's increased access to Western hardware since 1978, it is likely that coaputer developnment would have been even further delayed and even distor~ed. According to comments by Chinese officials in the MEI, foreign computer ~ompaniea that introduce sophisticated technology and management skills, will be allowed a share of China's domestic market.83 This policy was introduced, in all likelihood, because proportional to overall equipment imports, very little computerrelated technology in disembodied form has flowed into the PRC over the last several years. Within China, in some cases, a tension has arisen between those who are potential end-users and want access to a computer immediately!,!!! those who believe that excessive imports should be controlled so that domestic technological capabilities can be allowed to develop. Thia 82Peraonal communication in Chongqing, March 1985. 83"computer Market Opening to Foreign Manufacturers," China Daily, September 7, 1984, p.l. See also "Market for Computers Opened to Foreigners," China Daily, September 6, 1984.

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42 debate, which is reflect~d in the above comments by a computer engineer aL the Tianjin Computer Factory, has been particularly acute with respect to microcomputers. Between 1981-1985, excessive imports of foreign microcomputers basically undermined the effort to create a viable domestic base.84 More specifically, so-called developaent efforts were actually limited to assembly of iaport~d SKD (1eai-knock down) and CKD (completely knpcked dovu) kits.85 Thia brought in large amounts of revenue to those doina the assembly operation because of the great demand for foreign aade personal computers, but did little to stimulate indigenous technological progress.86 841n 1981, 36% of all microcomputers sold in China were domestically made. Due to the policy of tightening up in mid-1984, that number jumped to 56% in 1985. Of course, the term made in China is somewhat ambiguous, since assembly of foreign computers can be included in this category. Nonetheless, it does reflect a growing tendency towards encouragement of local computer products. China Daily, April 10, 1986, p.2. 85Assembly of imported computer kits became financially feasible because the duties on imported components were less thaa the duty on imported computers. Also, both Fujian and Guangdong had initially been exempted from needing to acquire an import license, thus making its easier for persona in both these provinces to broker what came to be called natant knock-down" computers froa Bong Kong, etc. 861n some cases, however, indigenous programs for microcomputer development did move forward. For example, the Jinzhou Electronic Computer Factory, Qinghua University, and the 2nd Branch of the Beijing Institute of Technology jointly developed and manufactured the DJS-142, a mini, all-purpose ~!gital computer. The machine can be configured with floppy disk or with a 5-to-20 MB hard disk storage system. While not up to technological levels in the industrialized nations, this machine represents China' continuing effort to develop its own hardware. According to Chinese sources, its operating system supports COBOL as well as BASIC computer languages.

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43 As a result, computers are on the list of 45 items requiring an import license issued by the Ministry of Foreign Economic Relations and Trade.87 In some respects, Chinese officials in the computer industry see China's development alternatives as lying somewhere between the self-reliance-oriented approaches of Brazil and India and the import and imitation-oriented strategy of -South Korea and Taiwan.88 In the case of the former, strong protectionist policies were imposed as a means to moderate foreign competition and preasures foreign firms to provide technology in return for greater market access. In the case of the latter, foreign models have been used for imitation and copying; firms in these two sites have seen linkages with foreign firms as a way to get into the computer industry rather than as a threat to indigenous development.89 Based on discussions in China and a number of recent articles in the Chinese pre~s, there appears to be a growing trend towards greater selectivity'" and elements of '"protectionism in terms of computer imports, especially in the microcomputer area. Thia movement does suggest that in some respects the Chinese may be orienting themselves more towards the India/Brazil approach--even in spite of the fact that both 87Ministry Adds 15 Items to Import Licensing List, China Daily, March 5, 1986, p.3. 88see Francia Rushi~g and Carol G. Brown, Policies for Develo in Hi h Technolo Industries: Comparisons Boulder: Weatview Presa, 198 eds., National International 89Even if China pursues the path of imitation and copying, it will require a substantial improvement in its microelectronics capabilities as well as further progress in the use of computer aided design and manufacturing techniques.

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44 countries have experienced problems because of their strict controla.90 Thia tightening up over imports, however, while addressing fundamental concerns a~cug the leadership about technological dependency, still takes place in an environment where people tend to denigrate the quality of Chinese-made aachinea.91 China' computer specialists hope that the appearance of the Great Wall 0520 microcomputer can represent the first step in building a more credible domestic computer industry.92 Basically an IBM-PC/IT clone using US, Japanese, and South Korean components, the Great Wall is produced at three factories in China, the premier one being the Beijing Wire Communications Factory {along with factories in Sichuan and Shandong provinces) which accounted for half of total production and has a capacity to manufacture 10,000 a year. The 0520 series includes three models in order to respond to specialized user needs in engineering design, scientific research, and factory management.93 The Great 90The tradeoffs are discussed in Rushing and Brown, eds., National Policies for Developing High Technology Industries. 91In order to improve the competitive position of domestic made machines, the Chinese recently dropped the prices of indigenously-manufactured models--which heretofore had been considerably more expensive than imported machines {even including import duties) in terms of their price/performance ratio. 92Great Wall Towers Over Domestic Sales," China Daily, Business Weekly, April 2, 1986, p.2. 93The MEI has established a "0520 Microcomputer Task Force" to handle sales as well as maintenance, service, and the publishing of materials. ThP. group will work with the China

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45 Wall 0520A uaea th Intel 8088 16-bit microprocessor, has a storage of 512 kilobytes and a high resolution color display of 640x200. It also feature a Chinese character disk operating system and ia readily aupported by a wide variety of Chinese character and IBM aoftvare, a factor that aakea it aore attractive then previous machines.94 Moreover, to encourage its acceptance in China, th8 SACI of MEI established an 0520 computer software development conaortium; it has Jigned contrac~a with over 20 unite for over 50 software-related tasks.95 The main difference froa the IBM/PC/XT ia that the main board has two aerial ports and one parallel port, thus giving the 0520 improved performance characteristics.96 According to the manager of the computer Computer Technology Service Corporation, which will handle training and general sales. The members of the group include the Beijing Wire Communications Factory, the Shanghai Computer Corporation, the Pujian Computer Corporation, the Huabei Terminal Equipment Company, the Suzhou Computer Plant, the 6th Bureau of the MEI and Qinghua University as well as such peripheral manufacturers as the Jiannan Machinery Plant and the Nanjing Wire Communications Plant. Jiauanji Shijie, #7, April 8, 1984, p.l. 94china baa introduced the Great Wall into the US in the hopes of eventually exporting these machines into the US market. However, while the press in China hailed the success of the Great Wall microcomputer at a recent US computer show, many questions remain about the extent of real compatibility with the IBM machines. 95 Microcomputer Software Takes the Path of Joint Development, Jisuanji Shijie, #9, May 8, 1984, p.l. 96sriefing on the ChangCheng 0520 Microcomputer, Dianzi Jiahu Yingyong, January 25, 1985, pp.12-14 translated in JPRS-CST-85-027, August 22, 1985, pp.99-105.

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46 division of the Beijing plant, close to 5,000 machines were sold in 1985 and demand is expected to reach 20,000 in 1986. The average coat per machine is 25,000 yuan, which is about 2/3 the price of an imported IBM personal computer.97 The concern about the slow progress in indigenous computer development has meant that the PRC has no real alternative in the short-term but to rely on technology transfer as a means to stimulate more rapid and sustained domestic progress. China's key focus, however, is on the acquisition of foreign computer design and manufacturing know-how rather than on the purchase of a large number of foreign-produced machines. Technology acquisition--as opposed to equipment acquisition--is being strongly encouraged because it is viewed as an intermediate step on the way to avoiding long-term dependence on external sources for foreign computers and eventually foreign technology. A good example of a project consistent with Chinese objectives involves the import of a disk drive production line from France in mid-1984 by the Jiannan Electronic Equipment Factory in Hunan.98 (The line which was the first peripheral production line imported in China, has the capacity of to produce 500 Model ZPC-204 hard disk drives and 3000 ZPC-3 floppy disk drives.) Another involves the 10 year, 97"Ministry Cuts Prices of PJC-made Computers," Xinhua, June 28, 1984 translated in JPRS-CST-85-012, April 23, 1985, p.64. Prior to mid-1984, the price of the Great Wall was 36,000 yuan. 98"MEI's Computer Bureau Sets Up First Modernized Disk Drive Production Line," Jiauanji Shijie, #11, June 8, 1984, p.l.

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47 US$12 million licensing agreement between the Gould Corporation and the Tianjin Autoaation & Instrumentation Factory concluded in late 1984 for assembly and manufacture of dedicated industrial computers called programme controllers.99 Under the agreement Gould will provide technical training to include instruction in aanufacturing techniques, testing operations, quality control proc, and equipment maintenance. Even in the area of large mainframe development, where appreciable numbers of imports are likely to continue for a while, it is clear that the Chinese are continuing to use Western designs aa part of their overall design efforts. R&D programs at MEI's two leading research institutes, the Huabei Computer Research Institute in Beijing and the Huadong Computer Research Institute in Shanghai, are already engaged in following this strategy in terms of their own development efforts. According to one MEI official, computer technology development should be guided by the principle of standardization, serialization, and universalization. The chosen models should use successful varieties available elsewhere in the world for reference and should absorb matured experience. Thia perspective ia quite consistent with Chinese practice since the 1970s, when the IBM 360 aeries was used as a model for 99chineae and US in Computer Deal, China Daily, July 12, 1984, p.2.

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48 the Chine DJS-200 aeries--though as indicated the performance of these machine never attained IBM levels due to architecture and software problems. In order to gain acceaa to technology, the Chinese have signed a number of joint venture-type agreements with firms such aa IBM, Burroughs, and Hewlett Packard.100 China's ezpectation is that its relationship with these foreign firms will evolve away from just aalea and distribution, and eventually include provisions to manufacture computers and related coaponenta.101 In fact, given the recent concerns about excessive imports and the newly added duties on such imports, foreign firms will increasingly find themselves faced with no viable alternative but manufacturing-oriented joint ve~tures or licensing of their technology if they want to aell microcomputers (16-bit) into the Chinese market. Sending students, scholars, and technical experts abroad for formal training is a major part of China's strategy for building a modern computer industry. Persons are being sent to places such as MIT, Carnegie-Mellon, Cal Tech, Stanford, etc. to learn the lOOAt this time, IBM appears to be the most active among the US firms vho are trying to expand their computer sales in China. IBM hae made the moat extensive commitment to the Chinese market, with 13 authorized dealers throughout the country aa of the end of 1985. lOlAccording to one Chinese commentator at the CAS, "it is difficult to solve the problem of compatibility with foreign computers. Thus, one good way of producing ~ompatible computers ia by entering into joint ventures with foreign countries." Wang Xinggang, "Ideas on Developing Computers in Our Country, Ziran Bianzhengfa Tongxun (Journal of the Dialectics of Nature), Number 6, 1982, pp.J-5.

PAGE 51

49 latest thinking in the West about computer design and architecture. In addition, groups of Chinese e~gineers are being sent overseas for training as part of the equipment purchase agreement.102 Unlike Taiwan, most of these visitors have returned or will return to China. In some cases, individuals have come with very specific objectives in mind, e.g. computer memory developaent or a software enhancement--making ita highly likely that when they return to China they will be able to easily apply their newly garnered information--a situation that stands in sharp contrast to the cases of other students/scholars who come to the US with somewhat more vague goals. Over the long term, it is this group of visiting scholars in the computer field that will form the technological backbone of the industry. The desire to focus attention on indigenous development does not mean that China has lost interest in importing foreign computers. (See Table 1) Over the next 3-5 years, the demands of economic and military modernization will necessitate continued import of computers, especially, as indicated, in the mini and mainframe range. US sales of computers and related automated data processing equipment rose from US$50 million in 1983, to US$101 million in 1984 and US$187 million in 1985. (According to the 102For example, 45 engineers were sent by the Ministry of Water Resources and Electric Power to complete a three month training course on the VAX 11/750 at Digital Equipment Corporation. The training was conducted in Chineoe and administered through Sun Associates, a Chinese-American company active in China trade. China Daily, July l, 1985, p.2.

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50 Department of Comaerce, US-China trade totalled US$7.l billion in 1985; computer-related sales as a% of total US exports to China accounted for only about 5.4% of total US sales to the PRC) (See Table 2) A visit through a variety of industrial and research facilities reveals a plethora of foreign made computers, and while US-made machines appear prevalent, the stock of computers includes an appreciable nuaber froa Taiwan (Multitech) as well as others (some US aade) that clearly were clandestinely brought into the country via Bong Kong prior to the relaxation of US export controls and COCOM controls. China's problem, however, is that even as gains expanded access to more sophsiticated equipment and higher levels of technology, it continues to be plagued by ineffeciency and ineffectiveness when it comes to the assimilation of foreign technology and know-how. Reverse-engineering with respect to compueers is a difficult process, especially if a country lacks the capabilities to manufacture the needed components at required levels of quality and reliability on a consistent and continuous basis. And, even if these Chinese can secure needed components from abroad, there is little evidence heretofore, except perhaps for the Galaxy, that they have been able to take that critical step into the world of design, adaptation and innovation on their own. As one Chinese author recently stated in addressing China's penchant for buying equipment and ignoring technology, et us change as soon as possible the formula of 0the first machine being

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51 imported, the second machine being imported, and the third machine also being imported' into one of 0the first machine being imported, the second machine being made by China, and the third machine being exported. For China, this will be more easily said than done until the 1990a. G. Foreign Competition in the China Computer Market (Table 6) Competition for ,n increased share of China's computer market is likely to grow in the immediate future aa US firms will encounter stiff competition from Japan (Fujitsu, NEC and Hitachi), West Germany (Siemens and Nixdorf), and France (Sofrecom). France (Sems Company), for example, gained lots of political capital when it installed China's first imported computer produ~tion line in September 1983 in Guangzhou for manufacture of the suola-16 minicomputer.104 Close business-government cooperation in the case of the Japanese and West Europeans will foster their competitive positions in the Chinese market. Of these three, however, it should come as no surprise that the Japanese have been and will continue to be the most aggressive l03cuangming Ribao Discusses Overreliance on Imported Technology, Zhongguo Xinwen She, July 41 1985 translated in JPRS ,!!-85-072, August 91 1985, p.9. 104rnstallation of Sino-French Computer iroduction Line Noted, Guangzhou Ribao, October 301 1982, p.l translated in JPRS 829051 February 181 1983, p.31.

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52 and difficult coapetitora.105 It ia already clear that during the mid-to-late 1970a, Hitachi benefitted (and US firms such aa IBM suffered) from the more rapid normalization of relations between China and Japan. The so-called china atrategiea of Japan's computer coapani have and will continue to atreaa training, cooperative aoftvare developaent, apecial financing package, and ,._'" 1ervice in order to obtain a coapetitive advantage.106 Firaa auch a NBC, Fujitau and Hitachi have already made aubatantial atridea in developing potential product loyalty through their high profile market poaition as well aa the creation of special training and software centers in China and Japan.107 105Thia ia not to suggest that other countries will lag far behind. France, in particular, has been aggressively pursuing computer-related sales in China. Along with the Jiannan project mentioned earlier, they have also sold a production line for manufacture of the suola-16" minicomputer to the Huanan (South China) Computer Corporation in Guangzhou. The project, which was funded by Doth local and central government authorities, involves the coming together of a number of key computer production unite under MEI in the Guangzhou area. 106some US firms have chosen to market their computers and related produdts through their Japanese subsidiaries. For example, Honeywell and its Japanese affiliate (Yamatake Honeywell), recently signed an agreement for process control technology that includes training in Japan, the US and China. IBM, through its Japanese marketing agent in Japan (Kanematsu Gosho Ltd), i1 also relying on its Japanese links to penetrate the Chinese market. Kanematsu is one of 13 IBM agents in China. It will concentrate its activities in southern China, particularly in the Shenzhen economic zone. China Daily, February 19, 1985. 107ror example, a Sino-Japanese Software Center was established in 1982 between NEC and the China Computer Technical Service Corporation of the MEI. The center provides machine time for computer users and accepts computational tasks, designs software systems, and demonstrates varioua computer products. Jisuanji Shijie, #5, March 5, 1982. NEC also negotiated an

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53 An aarnt for joint developaent of aoftware ianed in aid-1983 betveea the Japan Software Induatry Aaaociation and the ~hina Science and Technoloay Exchange Center of the SSTC vill alao help facilitate the aarketina and aale of Japan :oaputer producta.108 Japan firaa also have ,-,. been quick to take advantaa of chan1 in the atructure of COCON, auch aa the recent l by Hitachi to the Peopl' Bank of China of vhat can be considered the bi11eat order for lar1 aainfraaea coaputera by China (0S$25-30 aillion).109 PIC of ficlala in Shanghai have indicated that they are looking to Japan for guidance on the formulation of an over arching strategy upon which to pattern future development of the country' computer and electronic induatry, e.g. Japan' white paper on electronics and machine-building induatrle1 in the l950a--vhlch laid the baala for ita aoveaent into the area of aechatronica. Thus, while the Chinese remain leery about agreement in 1985 vith the CIIIC and the North China Terminal lquipaent Corporation to produce 16-bit aicrocoaputera in the latter' Baodina facility in Rebel. FBIS-PIC, February 6, 1985, p.D3. 108Japan Computer Software Group Feted in Beijing, Xinhua, July 25, 1983 translated in FBIS-PRC, July 26, 1983, p.D3. 109rtnanclal Tl, February 14, 1986, p.5. The Hitachi deal 1 important because it could help promote significant 1alea of additional Hitachi computer product to other bank in China. Soae US computer fir believe that Hitachi attempted to take advantage of the pending relaxation in COCON control in late 1985. By aetting up the aale prior to the COCOK announcement, Hitachi could complete the aale if the appropriate chana vere aade (which it did) or if the aale could not go throuah, it could bl the US for blocking the aale.

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54 exceaaive dependence on Jap.an, the Japanese experience -~nd thinkina will continue to exert a certain influence on China's own development pattern. At the sa11e, it is also true that if US coapani offer the right combination of training, technology tranafer, and financina, they can take advantage of China's apparent political preference for dealing with the US.110 (See ca below.) The concern among US fir that they have been loosing sales to China becauae of prevailing export control restrictions seem to have been largely resolved aa a result of the December 1985 relaxation in both US and C0C0M controls. (See Table 5) Under th new guidelines, China will have access to a substantial array of advanced computing machinery and related equipment. While it ia true that some delays continue to exist in the processing of applications, the fact is that recent changes (manifeated in the identification of 27 categories of items designated for liberalized treatment) have greatly improved the process by which applications for licenses are reviewed and acted upon. ll0Among some of the US firms that have focused on training are the following: a)IBM, which set up a training institute in Beijing aa part of its sales of the IBM 5550 and other machines; b)Wang Laboratotles, which set up a joint development center with the Bubei Radio Factory and a service center in Beijing; c)INTEL, which is working withthe Computer Bureau of the MEI on establiahment of a training center for 500-700 persona in Beijing; and d)Sperry, which is working with the China Computer Technical Service Corporation to train Chinese operators on Sperry equipment.

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55 Yet, while controls on computer hardware have been relaxed, many firms still feel that controls on software exports remain overly restrictive. Thia is particularly true regarding the software for compute: networking, which China badly needs if it is to make effective use of its increaing numbers of computers. In addition, software for CAD/CAM/CA!/ and CAT also remains tightly controlled in the eyes of many US fir According to interviews conducted i=i China and thl! US, the problem of excessive control over software exports must be resolved if US firms are to make significant inroads into the Chinese computer market.111 Two B~ief Exmples of US Computer Firms in China IBM's approach to the China market seems to stand out among US firm,. Each year since 1980, IBM has been able to sell 20-25 mainframe systems to China. In addition, several thousand IBM personal microcomputers have made their way into China, some through direct sales, but a large number through the gray market. IBM also has set up a training facility in China to support its salea--paat, present, and future. In many respects, IBM's success in the PRC has had much to do with the fact that lllThe problems with controls on software exports are followed closely by the fact that China's patent law, which was approved in April 1985, does not cover protection of software. Questions remain about how a firm cun protect its proprietary software, and whether or not the PRC government will commit to the use of either a copyright law or its patent law to provide greater security to foreign firms that bring their software into China.

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56 Chinese coaputer officials have considered IBM products (along with the DEC VAX aeries) to be one of the standards upon which to develop their own indigenous computer industry. In 1984, IBM China was established. Thia gave IBM a formal Chinese presence and signalled to the PRC government that IBM was making a long term coaaitment to China. In the same year, through its subsidiary in Japan, IBM introduced the Model 5550 to China, a multifunction, Chinese language large microcomputer that was well received. The machine is attractive to the Chinese not only because of its ability to efficiently handle Chinese characters, but also because its processing capabilities and performance are far and above any comparable machine produced by China on a mass production basis. In early 1985, .IBM donated 100 of the machines to four Chinese universities: Beijing University, Qinghua University, Pudan University and Shanghai Jiaotong Universitv. In May, IBM began training classes for 40 teachers and students to operate the computers. By the end of summer 1986, IBM introduced 3 new models/of the 5550 series, all of which offered the same or greater storage capacity while selling at up to 30% less than the original Model 5550. Chinese officials would like IBM to enter into a joint venture to manufacture the 5550 in China. The idea of entering into such a joint venture runs counter to IBM's general approach in the past to international marketing. Nonetheless, negotiations are continuing at this time.

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57 Another exaaple of a US firm that has been increasingly successful in China is Wang Laboratories, Inc. Wang began doing business in China as early as 1972, though its business in the PRC did not really take off until 1978-79. According to the China Daily, Wang has sold more than 200 small and medium-sized coaputera in China, aost of which have been handled through its sale aareeaent with Inatriapex. In 1985, the coapany's revenues fro China-related buaineas reached more than US$17 million.112 Alona with direct sales, Wang set up a small service center in Beijing in early 1984; several months later it joined forces with the Bubei Radio Factory in Wuhan to establish a joint development center for cooperative activities in office automation, software development, and personnel training. Wang's underlying approach to China has been a strategy emphasizing sale and production of small machines, with the hope that these sales will lead to purchases of larger machines--around which all of the smaller machines can be connected and networked. Its major competitive advantage in China has been its Chinese character operating system, known as the VS (ideographic VS) system. In 1980, Wang began negotiating with China's MEI's about the possibility of establishing a joint venture in the PRC. Three proposals emerged out of these discussions: l)a jv with the Shanghai Computer Corporation in Shanghai; 2)a jv with the Xiamen 112wang Starts Computer Sales Drive, China Daily, February 21, 1986.

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58 Development Corporation in Fujian; and l)a jv with the Beijing 738 Wire Communication Factory in Beijing. Initially, the aim was to introduce a CKD operation for its VS system at the Beijing 738 facility, a CKD operation for the Wang Office Assistant in Shanghai, and a CKD operation for the IPC (ideographic rofeaaional computer) ayatem in Xiamen. Wang waa to provide the machinery and related equipment aa well as cash in setting up the production lines, while the Chinese would provide the manpower, aome capital investment, the buildings, and other infrastructural support. In each of the three proposed cases, Wang's major aim was to replicate its existing facilities in the US or elsewhere. Wang's orientation in setting up a joint venture(s) in China was to stress consistency with its proven operations. For example, Wang will not bring second-hand equipment ~nto China; nor did it anticipate introducing any drastic changes in the mode of operation. Its hope was to utilize capabilities and knowledge at its production sites in Ireland, Scotland, Puerto Rico, Australia, Mexico, and Taiwan to assist with the start-up of its China ventures. Wang expressed its willingness to provide four key forms of technology transfer: manufacturing know-how, engineering and managerial know-how, software diagnostics, and after-sales service and maintenance techniques. Moreover, Wang stressed to PRC officials that the equipment intended for use in China was equal to that being used in the Wang facilities in Taiwan. This

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59 fact precluded the emergence of a major technology transfer issue in the negotiations--though the issue of the value of the technology did present a stumbling block at various points in the discussions. A number of other issues also emerged during the course of negotiations between the tvo sides. First, the quantity and cost of training vas a major concern of the Chinese. Wang made a special effort to define the number of people that would receive training, the tasks and areas of training, and the costs. In keeping with its policy of consistency, it offered China no more and no fever training slots. China wanted as much training as possible. Second, the question of foreign exchange remittance remained unsettled. It was agreed that after the 3rd year, each venture would have an export requirement of uv to 25% of the output. China's aim is to have foreign firms hold large quantities of foreiJrn exchange as an incentive for them to do more local sourcing and train local firms to be effective suppliers. (In general, PRC officials frequently apply unbearable pressure on foreign firms to source locally.) And, while Wang prefers local sourcing and local employees, it is also concerned with four key considerations: l)quality to meet worldwide standards, especially s i nee the products would be using the Wang trademark; 2) overall

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60 coat coapetitiveneaa; 3)ability to meet delivery schedules; and 4)ability to meet volume requirements. Overall, Wang's main concerns with engaging in manufacturing operation in China revolved around China's lack of familiarity with larae-acale aaaa production operations. Concerns existed about whether operatioua would ever get large enough to generate sufficient econoaiea of scale to be profitable. Second, it was felt that local parochialism combined with bureaucratic infighting might continue to preclude the emergence of broad perspectives on marketing approaches. And, third, Wang of ficiala feared that China's current manufacturing techniques and philosophies might interfere with meeting quality requirements. Moreover, while the potential return on Wang's equity investment in China was of direct concern, the real pressing issue was and continues to be the coat of doing business in China until the venture matures. Under these circumstances, Wang's initial strategy has been to keep its ventures small while minimizing unnecessary exposure, and using as a few expatriates as possible to prevent a drain on the joint venture's resources. Since initial discussions began, the three proposed projects have been restructured due to a variety of factors on both sides. Wang's intention, with Chinese government support, is to initiate its first joint venture in Shanghai. Instead of producing the Office Assistant at this site, however, the IPC (ideographic PC)

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61 will now be produced. The change waa neceaaitated by the fact that the performance of the IPC baa gone up and the price haa gone down, thus reducing the attraction of the earlier product. The venture, which ia due to come on line in early summer 1986, will require extensive renovation of an existing facility in Shanghai. The deciaion to proceed firat with the Shanghai venture in China waa not without its probleaa aa the MEI felt somewhat concerned about ita ability to control events in that municipality. The bureaucratic rivalry between MEI and Shanghai waa not something that could be easily dissipated. Nonetheless, in the interest of time and after taking exiating technical capabilities into consideration, MEI acquiesced. H. National Security and China's Computer Development As noted, one of the principle driving forces behind computer development in China is the defense establishment, wh{ch through the Science and Technology Department of the National Defense Science, Technology and Industries Commission, provides financial and organizational support for computer development to facilities under the Ministry of Electronics Industry (East China and North China Computer Research Institutes), the Chinese Academy of Sciences (Institute of Computing Technology), the Ministry of Space Industry, and various universities.113 In general, many of 113The personnel from these various organizations have together formed a critical mass of key individuals. See computer Scientists Aid Nuclear and Space Programs, FBIS-PRC, September 3,

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62 these facilities are not wholly dedicated to the military, but perform taaka for both civilian and military organizations.114 The PRC missile program, nuclear weapons program, and its now emerging commercial apace program are major sources of demand in terms of enhanced computer capabilities. It appears likely that the general upgrading of the research and production infrastructure for microelectronics will help contribute to both military and civilian computer developments. Thia 1 ~specially true in view of the recent admonition encouraging closer interaction between the military and civilian sectors.115 _Mor e o v e r Zhang Ai p i n g Minis t er of Defense and former dirt1ctor of the NDSTIC, has on several occasions stressed the need for greater attention to electronics and computer development.116 As such, representatives from the NDSTIC sit on the State Council's special leading group for electronics and 1982, p.K20. 1 1 4 A good example involves the number of civilian entities involved in the May 1980 launch of China's ICBM. See Gu Zengpei, "Talking About Achievements and Problems in Our Nation's Electronics Technology Basedon the Launching of the Cargo Rocket Into the Pacific," Dianzi Kexue Jishu, #120, November 1981, pp.43-48. For a discussion of these issues in the context of the Nanjing Radio Factory see also Dong Yu and Chen Jinyu, "Integration of Military and Civilian Production," Jingji Guanli, December 5, 1983, pp:31-33. 115see "Transfer of Military Technology to Civilian Use Is a Major Component of China's Technical Markets, Kexuexue Yu Kexue Jishu Guanli, #4, April 12, 1985, pp.6-7. 116zhang Aiping Urges Electronics Industry Growth," Xinhua, January 31, 1985 translated in PBIS-PRC, February 1, 1985, p.KlJ.

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63 coaputer development, further supporting the high level of attention being given to the computer industry by China's defense leadership. Two good exaaples of military-civilian interaction involve the development of the 757 10 mips mainframe computer by the Inatitute of Computer Technology under the Chinese Academy of Science and the Galaxy, a 10-0 mips computer developed by the -National Defense Science and Technology University in Changsha. Both projects appears to be especially significant because they reflect a growing Chinese interest in aupercomputera.117 In a )recent article by Qian Xueset,, the Cal Tech trained scientist moat often associated with China's missile program, the functional role and evolution of supercomputers in the US and Japan are discussed, highlighting the importance for China of maintaining a presence in 117while there are both potential military and civilian applications for supercomputers, the national security implications seem to be the moat critical from the perspective of technology transfer. According to a Newsweek report, the importance of supercomputers lies in the fact that "these technologies will make possible a new breed of weapons and military hardware. Smart weapona--drone aircraft, unmanned submarines, and land vehiclea--that combine artifical intelligence and high powered computing can be sent off to do jobs that now involve human risk." See William Marbach, et.al., "The Race to Build a Supercomputer," Newsweek, July 4, 1983. These machines are also useful in the design of very large-scale integrated circuits, such as advanced memory chips. See Businessweek, November 28, 1983, p.109. While China currently lacks the capabilities to make a significant push in these areas, development of such machines--supported by direct and indirect acquisition of foreign technology--could allow tha Chinese to make much more rapid progress than might otherwise have been the case, particularly if such development is designated a high priority by the central leadership

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64 this area of important technological change.118 In particular, Qian talks about the growing role of intelligent machines for solving not only mathematical problems, but in transforming the nature of work and how man and machines relate to one another.119 Re closes his article, however, with an admonition that supercomputer technology is treated like the technology for producting atomic weapons, etc. in the West, and therefore China must establish its own independent efforts to realize technological advances in this area.120 The two projects discussed below seem to reflect this latter perspective. The 757 project, which originated in the mid-l970s, was ostensibly begun at the bequest of the Ministry of Nuclear Industry, while it was still known as the 2nd Ministry of Machine-Building. The project was designed to emphasize China's technological self-reliance; the electronic components and ll8Qian Xuesen, "On the Question of the Fifth Generation Computer," Ziran Zazhi (Journal of Nature), Volume 8, Number 1, January 1985, pp.3-9. 119Among the problems cited by Qian for application of supercomputers are non-linear partial differential equations, non-linear finite element analysis, and multi-order perturbation methods. Some of the applications of supercomputers noted by Qian include aerodynamics, the diffusion of gases, nuclear explosion technology, chemical molecule design, and quantum color dynamics. l20one of the other interesting aspects of the Qian article is his discussion of the debates over design in China during the development of the Galaxy computer. Implicitly, Qian suggests that Chinese computer scientists.had not adjusted to the changing economic structure of computer technologies, whereby components were decreasing in coat and therefore did not have to be used as sparingly as they may have been in the past.

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65 semiconductors needed for the computer were to come from domestic sources. The task of overall coordination was given to the CAS; along with providing technical support, the Institute of Computer Technology had to interface with the Institute of Metallurgy (CAS, Shanghai branch), the Beijing Dongguang Factory (#878), the Ministry of Electronics Industry, the Ministry of Chemicals Industry, the CAS #109 Factory, the Institute of Semiconductors (CAS), and the National Defense Science and Technology Commission -which provided overall funding. One machine was produced by the early 1980s; it is now being upgraded to the 30 mips level with the magnetic core memory being replaced by integrated circuits and the major components being imported from abroad instead of purchased from domestic sources. A similar example is found in the case of the Galaxy computer, which is said to be a Chinese version of the powerful Cray 1.121 The Galaxy is projected to hav~ a data processing capacity that can handle 100 million operations per second,122 It is primarily being used for weapons-related calculations and petroleum explortion and weather forecasting,123 The development l2lcalaxy Sparks Illuminate China," Renmin Ribao, January 5, 1984, p.J. 122~chinese Supercomputer Unveiled," China Pictorial, March 1984, pp.1-2. l23In addition to the work ass~ciated with the Galaxy project in Changsha, the Chinese have also developed an advanced array processor (NCI-AP2701) that has a processing capability of "tens of millions of instructions per second. It was developed by the North China Computer Research Institute of the Ministry of

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66 of China' first supercomputer began in May 1978 and was accomplished by sending out an investigation and Research Group many times to all parts of the country in order to gather extensive information and materials from both China and abroad. Moreover, some 20 groups, including Hunan University, Hunan Teacher's College, Pudan University, Wuhan University, the Ministry of Space Industry, and the Information Institute of the NDSTIC, detailed essential technical personnel to work on the project, reflecting the proven ability of the NDSTIC to bring together critical resources to accomplish a high priority national goa1.125 Even though the Chinese have officially announced the manufacture of one Galaxy machine, based on discussions in China and the US there is evidence that China may have actually built two Galaxy-like computers. One of these machines may be in Beijing at the Ministry of Petroleum Industry and the other still in Changsha. In contrast to the 757 project, however, the Galaxy relied on imports for over 90% of its component and semiconductor Electronics Industry. The new machine has projected applications in mineral prospecting, medicine, power management, and national defense. 124A good reflection of China's level of understanding vis-a vis supercomputer technology is reflected in a survey of supercomputer architecture in the journal Dianzi Xuebao, Volume 11, 13, May 1983, pp.91-98 translated in JPRS-CST-85-006, March 6, 1985, pp.43-58. The Chinese are also extremely interested in the so-called fifth generation computer and have already begun some preliminary research in this area. China Daily, June 5, 1985. 125china Daily, December 22, 1983, p~l.

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67 ned.126 Upon it coapletion in Kay 1983, the State Council organized 95 coaputer expert and technicians from 29 different organization to aaseas and evaluate the final product.127 More recently, a preproces1or microcomputer for the Galaxy was developed by the RDSTU and put into production at the Tianjin 12 ladio Plant.128 The preproceaaor will help the Galaxy reduce operational coats and aore efficiently handle large-acale projecta. In moat ca1e1 (though not necesaarily in all casea) internal technology aharing must be a11umed in conaidering the sale of advanced computer to the Plc.129 The only factor working againat such sharing 11 the bureaucratic rivalry among Chinese organizations, though thia appears to be much leas of a aerious problem when the defense sector is involved. As far aa China's willingnesa to abide by existing US guidelines 11 concerned, the evidence 11 much le11 clear. In some ca1e1, China continues to use Hong Kong as a site for procuring sensitive technologies as well as uaing HK-baaed firms aa sites for training PRC nationals 126peraonal communication, Beijing, January 1986. 127Gdlaxy Super-Computer, Beijing Review, January 2, 1984, p.8. l28Defenae University Develop, Super-Microcomputer, Xinhua, December 29, 1985 translated in FBIS-PRC, December JO, 1985, p.Kl8. 129A variety of phyaical devices aa well aa device internal to the computer and its oftware can be uaed to prevent unauthorized ace In the caae of the latter, attempt, at ace by unauthorized per1on1 can be detected.

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68 in technical ar preaently prohibited for 1ale to China under US export controla.130 With raapect to diversion of US technology, the only thing that can be aaid up to thia point is that Chinese officials have been reluctant to 10 on public r~cord to commit to a policy of non-divaraion to third countrie because it violate& their aoveraianty. Recent changea in the COCOM and export control 1uidelinea, however, neceaaitate the issuance of an end-user certificate by MOFEIT certifying that all items exported to the PRC are for uae in the PRC and will not be reexported to a third country. The dilemma faced by the US in this context, particularly with re1pect to the sale of larger machines, is no different than that associated with the Sino-American nuclear power agreement; either we feel confident about China's willingness to be a re1ponaible international actor or we do not. Aaide from supercomputers, enhanced computer capabilities, including acqui1itlon of foreign microproce11or technology, also have actual and potential application in China's strategic progra The accuracy of China's intermediate and 130tnformation Systems: Rong Kong Winning Name of China's Saugglera' Cove, MIS Week, May 22, 1985, p.20. lllthe nclusion of MOPERT in the proceeasing of licenaes place, part of the bureaucratic burden on the PRC aide by giving the Chinese aide a vested interest in reviewing and issuing certification requests as rapidly as possible. Prom a political parapactive, it also place, the major responsibility for nondiver1ion in Beijing's handa.

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69 intercontinental missiles, for example, could be upgraded by relatively minor improvements in computerized guidance system operations.132 These computer-related improvements would allow for better prelaunch calibration of the gyroscopes and acceleroaeters aa well as better in-flight performance,133 Computers also have begun to make their presence felt within the conventional warfare and training elements of the PRC military,134 The military aide of the Jiangxi Nautical Instrument Factory has introduced a minicomputer to assist with militia and reserve troop statistical work.135 Additionally, the academies of the People's Liberation Army have begun to introduce all sorts of electronic computers for training and battlefield simulations,136 For example, CEIEC has been promoting the sale of the SHMX II-II antitank missile simulator abroad after it has been successfully 132china's recent advances in its space program reflect a host of computer-related advances both in terms of performance and general application. 133see John Tirman, ed., The Militarization of High Technology (Cambridge: Ballinger Publishers, 1984), pp.45-61, l34From an overall perspective, computers have the potential of significantly decreasing the cost of weapons systems and related military equipment while signficantly improving performance levels and characteristics, 135zhon8!uo Minbing, February 9, 1985, pp,42-43 translated in JPRS-CPS-855, July l, 1985, p,113, 136According to one US weapons expert, simulations are revolutionizing the training of pilots and other equipment operators. Computer simulators recreate, at reasonable cost, the fast-paced combat conditions that are often too dangerous and expensive to duplicate in reality. See William Perry and Cynthia Roberts, "Winning Through Sophistication," Technology Review, July 1982.

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70 introduced with PLA training programs.137 Moreover, China's entire orientation to military logistics on and off the battlefield has been influenced by the availability and potential application of computers.138 I. The Socio-Political Impact of Computers As the technological changes associated with computers move ahead, the contribution of these changes to social stability tends to grow weaker and weaker.139 Viewed from such a perspective, the potential impact of computers on Chinese societal development could be significant. In many cases, decisions about export control cases rarely reflect the tradeoffs between the benefits that increased computerization might provide, e.g. stimulating greater political openness, versus the national security risks involved. Propelled by catchy phrases such as Toffler's "third wave," the Chinese have gone for computers in a big way, perhaps much faster than they even realize. In many cases, it seems clear that Chinese leaders have not considered the full range of sociopolitical impacts that persons such as Daniel Bell, Herbert Simon, and Sheryl Turkle have spoken about in their analysis of computers 137xiandai Junshi, #103, June 1985, p.7. 138cheng Pang-kuang, "Reform of Logistics Work in the Chinese Communist Army," Chung-kung Yen-chiu, January 15, 1986, pp.103-109 translated in JPRS-CPS-86-027, March 26, 1986, pp.95-107. 139wilson Dizard, The Coming Information Age, 2nd edition (Nev York: Longman, Inc, 1985).

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71 in the Wea t. Major changes a re on the horizon for China in the workplace, in educational institutions, and in their political system if present trend& towards the use of computers continue,140 To some extent, the problem posed by the proliferation of computers in China represents many of the other problems associated with technological change in the PRC: Chinese leaders believe that they can capture the advantages of advanced technology while minimizing socio-political and cultural change. History has shown that this is a difficult, if not impossible challenge, Many questions remain about what a "Chinese-style information society" will look like,141 More.over recent discussions in China about the creation of a national computerized system for personal identification to replace th~ presently used system of hand-written ID cards raises potentially serious human rights issues for the US--particularly since the Chinese are looking to US firms to source the equipment and software to establish such a capability, 140one issue that the Chinese have yet to encounter on a large scale concerns the problem of transborder data flows. This issue, which strikes at the heart of questions regarding national sovereignty and control, seems likely to emerge in China as more and more multinational firms arrive in the PRC with coputer systems that wish to communicate with and transfer data to the computer systems of their parent in the US or other locations, 14lsased on a number of articles in the Chinese press, there is a growing concern about computer security. Following the lead of the US Department of Defense decision in 1981 to set up a special computer security center, the Chinese have begun to introduce various forms of security devices, including passwords, access control matrices, encryption devices of a rather sophisticated nature, e.g. permutation schemes to encode data,

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72 J. Projection of China's Computer Future Technology transfer has played an important role in China's coaputer developaent, though mainly through indirect rather than direct aeana. Three types of technology transfer have occurred: ~)iaport of computers aa equipment for actual applicatiooa; b)use of foreign computers as models for reverse-engineering and imitation; and c)use of Western components for manufacture of domestic and foreign designed machines. In most cases, it is clear that the Chinese have benefitted from their expanded access since the late 1970s to foreign equipment and technical literature--though the full extent of the impact remains uneven and uncertain at this point. Largely through the process of reverse engineering, however, the Chinese have used knowledge of foreign designs and operating principles to advance their current mainframe and micro computer development programs. Progress has been appreciable with respect to the latter category, with 8-bit machines and more recently 16-b!t computers most clearly reflecting the results of foreign borrowing. And, as the case of the Great Wall microcomputer indicates, when foreign design concepts have been mastered, rlplication has become much less difficult since it has become easier (due to export control relaxation) for China to secure many of the necessary foreign semiconductor and integrated circuit components to build such machines.

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73 At the same time, however, because of the limits inherent in the role of reverse engineering as an effective vehicle for technology transfer, the contribution of foreign imports to overall doaeatic anticipated. These technological advance has been leas than process problems hav~ been compounded by China's ovn ahortcoainga with respect to personnel and components production and quality aa well aa overall manufacturing techniques. Moreover, aa the requirements for so-called customized components have grown, the Chinese have found themselves overly dependent on more standardized imported components that are unable to meet more specific design needs or on a domestic industry that all too often cannot meet component supply requirements in terms of numbers and reliability. Nonetheless, by the end of the decade, even though the Chinese will not significantly close the gap with the West and Japan in overall computer technology, China will move ahead in a number of facets of its computer industry. And, while recent economic reforms may be one driving force behind this progress, the ~ajor impetus will still lie within government hands. Through its current efforts to build a broad-based research and production infrastructure for computer development, both central and local government organizations will, in effect, be absorbing the startup coats for establishment of a viable computer industry. Highlevel bodies such as the Leading Group for Electronics under the

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74 State Council promise to ensure that sufficient resources are made available for these purposes. Additional pressures from the Chinese military, which are likely to increase over time as they seek out a larger share of existing resources, will also support continued emphasis on computer development.142 Thus, the essence of the atrategy for coaputer development will be similar to that of electronics, that is, a two pronged strategy, whereby the ability of the central government to orchestrate critical projects through its tasking authority will be combined with use of market forces to stimulate innovation in terms of both design and application. China's banking system and financial institutions appear to be one of the largest potential clients for both domestic and imported foreign computers.143 The five key banks in China, the People's Bank, the Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China, and the People's Construction Bank of China all plan to greatly expand the use of computers to conduct their business and link their offices throughout the country. Along with banking, other major uses will be in the tourist/travel industry and the education system as well as in general overall industrial management and national defense. 1 42The demand for computers ls also likely to come from the need for better radar and navigation systems, training simulation equipment, and command and control capabilities as well as from strategic weapons programs. 1 43sanking on Computers, China Daily, October 2, 1984, p.2.

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15 Baaed on the aucceaaful implementation of the current strategy for computer development, the following pockets of excellence are likely to emerge: a)Softvare development. Software development will continue to be a high Chinese priority in terms of investment and R&D activities. China doe, not have the burden of a large inventory of illstructured prograamea to maintain. Given the potential to build a clean software industry, combined with the low coat of Chinese technical labor, it is likely that China will close the prevailing software gap at a faster pace than hardware. This may result in a significant Chinese presence in global software markets, particularly if it can build alliances" with Western computer firms that have access to the latest hardware developments and also have established market access. Included in this category is Chinese character-based software covering the full spectrum of industrial, financial, and scientific programs. b)Microcomputer development. In view of the progress that has been made in the design of machines such as the Great Wall 0520, wh)ch is said to be a clone of the IBM PC/XT, China will gradually take the lead in producing what may turn out to be one of the microcomputers of the Third World. In view of China's cost 144 To test the acceptability of the Great Wall computer, it waa recently shown at an exhibition in the US in November 1985.

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76 structure as well as its current ability to imitate and reverse engineer Western designs, a Chinese-built microcomputer could be competitive with prevailing Western models, especially if the Chinese can parallel their progress in computer development with siailar iaproveaents in aicroelectronica technologies.145 Even if this doe not aaterial1ze, it is possible to visualize a scenario whereby the Chineae becoae aajor OEM (original equlpment aanufacturera) producers for soae of the larger computer manufacturers. Over the longer tera, PRC efforts could be boosted by various fora of technological cooperation froa Singapore, Hong Kong and even Taian--all of which have a growing familiarity with Western levels of sophistication. c)Supercomputers. Even though the Chinese will remain generally 5-7 years behind in their ability to mass produce both micro and minicoaputera, they will continue to be adept at channelling their limited resources and overcoming existing organizational barriers to attain state-of-the-art technology levels in a number of key defense-related areas, foreaost among them being large computers. Chinese computer specialists have paid careful attention to supercomputer development in the West and Japan (as well as such 1 4510 1983, China exported its first set of computers, the BCM-III, which is an 8-bit, single board computer. According to reports, 1000 units were sold to West Germany--though interviews in that country did not indicate the existence of this product in the retail marke~place. Discussions in Beijing in January 1986, however, did reveal that the BCM-III happens to be one of the computer aeries that cannot find an adequate market in China, let alone be sold in large numbers abroad.

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77 projects aa VBSIC--the effort to create very high speed integrated circuit) and have a good grasp of developments towards production of the so-called "fifth generation" computer. The Galaxy program manifests a determination to close the prevailing gap with the West. a determination that is apparently supported by the availability of all aorta of financil. technical. and personnel resources. And while some questions remain about the performance of the Galaxy as compared with the Cray. the fact remains that the Chinese were apparently able to master not only the electronics aspects, but more critically. the cooling technologies that lie at the heart of the Cray system. If such is the case, this does suggest a potential area where China could make substantial progress over the next five years. Progress in each of these areas holds important implications for the us. From an economic perspective. improved application of computers, be they foreign or domestically produced, will assist the Chinese in all facets of their modernization program. Given the US policy of support for the four modernizations program. it is reasonable to conclude that the US should promote and facilitate the expanded use of computers in China. Cooperation programs and educational exchanges associated with information systems and technologies should be given adequate political and financial support. Without such support from the US Government ( a n d U S a 11 i e a ) : ma n y o f t h e i m p r o v e me n t s i n ma n a g e r i a 1 efficiency, productivity, and coordination that are needed to

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78 modernize the Pac economy will be delayed or inhibited from occurring. Aa such, export controls that unneccesarily restrict the sale of equipment and related items to China in support of economic modernization should be adjusted or removed. Proa a commercial perapective, Chinese manufacturers, if joined together with US fir through joint venturee, etc., could aerve aa important production complements to America's computer industry in much the same way that Taiwan and South Korea do today. At the same time, however, it is also clear that China does not want to be a mere appendage to the US economy, and will increasingly encourage domestication of its computer industry, gradually decreasing the amount of direct control foreign firms have over this high priority industry--but not decreasing the push for expanded levels of technology transfer. This suggests that access to the Chinese market may become increasingly scarce as Chinese capabilities improve. In effect, the transfer of technology to the Pac may provide for some short-term rewards, but as presently structured. the currently emerging relationships between US and PRC firms may not provide the basis for long-term commercial cooperation. On the military side, there is little doubt that the acquisition of foreign computers and related technologies will assist the PRC in all facets of its military modernization program. The real question is how far and how fast will China's

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military progress? 79 Of greatest concern should be the potential contribution of China's computer revolution to strategic weapons programs. It remains to b2 seen whether the risks of directly or indirectly supporting such programs can be successfully ascertained at this point in time based on our current information base and knowledge of Chinese intentions. For the present, this level of uncertainty suggests that caution should be our guiding principle in aanaging advanced coaputer sales to the PRC in the short-term. Moreover, the likelihood of internal diversion from approved civilian users to unauthorized military end-users remains very high--and so do the potential security risks if such diversions do take place. Before further significant relaxation in present controls does occur, it would do the US well to gain more insight into the future of the post-Deng _succession, the precise meaning to the US of China's "independent" foreign policy posture, and the evolving role of the PRC military within the realm of domestic poiitics and foreign policy decision-making.

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Chart l Oraanization of China's Computer Industry (within the MEI) Ministry of Electronics Industry ' 80 ---------------------------------------------------------------------' Broadcaating (TV ladio) ladar Coaputers (former SACI) ' CEIEC Components Adainiatrative Office---~- ' ---------------------------------------------------------------------' ' ' ' .. Great Ai Rua Nanjing Nanfang Ruabei Ruanan Xinan San Yi China Wall Electronic Zijin Inforaat Terminal Coaputer Comp Comp Magnetic Inform Wire Computer Induatry Equip Corp Corp Corp Equip Corp Corp Corp Corp Corp Corp .. .. .. .. .. .. .. Engineering Companies R.&D Institutes .. Service (China Comp Tech Serv Corp) .. Users Assoc .. Software (China Comp Software Ct .. .. China Comp System Engin Corp .. North China Computer lea Inat .. .. China f Comp Mach Liaoning .. .. .. Beijing Shanghai Tianjin (Main Branches) 1' .. .. .. ,r Liao-Beijing Shang-ning hai 1' Tianjin Room Engin Corp ' I' (plus 41 local branches) .. .. .. .. ' .. East China Computer Rea Inst .. China Computer User Assoc .. Taiyuan Peripheral Research Institute .. .. .. Microcomputer User Assoc .. 1' Microcomputer Research & Application Assoc Taiyuan Beijing Polytechnic Magnetic University Materials 2nd Res Inst Branch Dept

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Chart 2 China' Electronics Indu1try STATE COUNCIL .. .. 81 ------------------------------.. .. LIADIRG GI.OUP FOi. S&T LEADING GIOUP FOi .KICIOILICTI.ONICS AND COMPUTERS .. .. .. ------------------------------------------~------------------.. STATI ICON CONK .. STAT! PLAN CONK .. .. .. f .. STATE S&T COMM f STATE EDUC COMM .. NDST&I COMM ----------------------------------------------------------------.. .. MIN or MACH BUILDING KIN OF POSTS & TELECOMK .. .. ADKIN DEPTS .. DEPT OF BROADCASTING (TV & COMM) .. POI AFFAIRS .. FINANCE .. PERSONNEL .. EDUCATION .. S&T .. BASIC CONSTRUCT .. ETC .. DEPT OF RADAR & NAVIG MUNICIPAL ELECTRONICS AND COMPUTE! BUREAUS & CORPORATIONS .. f .. MIN OF ELECT INDUSTRY MIN OP SPACE MOFERT INDUSTRY .. .. .. DEPT OF ELEC DEVICES & COMPON .. .. CHINA NATIONAL DEVICES CORP .. .. .. .. .. .. DEPT OF COMP & PERIPH (SACI) l'---CHINA ELEC IM/EX CORP .. .. SHANGHAI .. TIANJIN GUANGZHOU .. SHENZHEN OTHER MINISTERIAL FACTORIES AND RESEARCH UNITS

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82 Chart 3 Major Achievements in China's Computer Industry, 1977-85 1977 Development of China's first microcomputer (DJS-050) 1979 Development of HDS-9 (5 MIPS) by CAS Institute of Computer Technology 1979 Development of DJS-052 microprocessor (8 bit, one chip) 1983 Development of China's first supercomputer cYinhe (Galaxy),100 MIPS) by the S&T University for National Defenae in Changsha 1983 Development of the 0520 microcomputer (IBM PC compatible) by the MEI Institute No.6 and production by Beijing Wire Communications Factory 1983 Development of the 10 MIPS parallel computer by CAS Institute of Computer Technology 1983 Development of a 16 bit desk-top computer (77-II) by the Lishan Microcomputer Corporation 1984 Development of the 16 bit TQ-0671 microcomputer system by the Tianjin Computer Institute (CPU: MC 68000) 1985 Development of NCI-AP 2701 floating point array pro-cessor by MEI North China Institute of Computer Technology 1985 Development of NCI-2780 super-minicomputer (32 bit) by North China Institute of Computer Technology (Clone of DEC VAX 11/780?) 1985 Development of 8030 computer by East China Institute of Computer Technology (compatible with IBM 370/138) 1985 Development of YH-Xl super-minicomputer by the S&T University for National Defense in Changsha 1985 Development of YH-Fl emulator by the S&T University for National Defense in Changsha Source: Assorted Chinese and English-language publications.

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Chart 4 China's Leading Computer Facilities Name A. Manufacturing Beijing Wire Communicaations Factory Beijing #3 Computer Factory Tianjin #2 Computer Factory Nanjing Wire Communications Factory Shanghai Computer Factory Shanghai Broadcasting Equip Factory Hangzhou Magnetic Equipment Factory Suzhou Computer Factory Wuxi Computer Factory Lishan Microcomputer Factory Shenzhen Aihua Electronics Company B. Research & Development Huabei Computer Research Institute Huadong Computer Research Institute Institute of Computer Technology, CAS Chengdu Institute of Computer Applic National Defense Univ for S&T Qinghia University Shanghai Jiaotong University MEI Research Institute #6 MEI Research Institute #18 MEI Research Institute #52 MEI Research Institue #53 Location Beijing Beijing Tianjin Nanjing Shanghai Shanghai Hangzhou Suzhou Wuxi, Jiangsu Xian Shenzhen SEZ Beijing Shanghai Beijing Chengdu, Sichuan Changsha Beijing Shanghai Beijing(?) Changsha Taiyuan Liaoning 83 Source: The China Directory of Machinery and Electroni..!_ Enterprises (Beijing: Machine-Building Industry Publishing House, 1984) and China Scientific Research and Technology Services Handbook (Beijing: Guangming Daily Publishing House, 1984).

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Table 1 Mini and MainFrame Computer Sales to China (as of January 1985) Manufacturer Burrough Control Data Data General Digital Equipment(DEC) Fujitsu Hewlett-Packard Hitachi Honeywell IBM Nippon Electric(NEC) Prime Siemens Sperry Toshiba Wang USSR/East Europe Others Estimated Total I of Installation 38 18 20 350 74 66 97 108 100 20 19 20 8 10 220 40 31 1,239 Source: International Data Corporation, Hong Kong, Sept 1985. 84

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85 Table 2 US Com uter & Related E ui ment Sales to China in thousands of dollars Item 1981 1982 1983 1984 1985 -Analog & Hybrid 163 5041 1715 2082 6767 Coaputers Digital Computers 5158 11337 11324 25265 80062 Digital Central 5179 2169 10816 32494 35411 Processing Units landoa Access 1052 1049 1849 1519 7399 Aux Storage Serial Acceaa Aux 140 430 680 1995 5204 Storage Terminals 699 1108 2241 2261 3900 Printers 645 626 1063 1814 3454 Communication & 268 1644 2301 8006 9175 Peripherals Parts, etc. 3763 8376 11913 20476 31710 Microprocessor 104 25 4 50 47 Integrated Circuits Printed Circuit 258 58 557 1407 2245 Boards Cathode Ray Tubes 8 91 22 179 417 Source: Office of Chinese Affairs, US Department of Commerce, 19 86.

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Table 3 Selected Chinese Microcomputers Computer Manufacturer DJS-060 Series (8) Shenyang-Liao he Inst DJS-060 Series (8) Sichuan Solid State Inst DJS-054 (8) Shanghai Computer Factory DJS-033 (8) Nanjing Wireless lladio Pact DJS-044 (8) Beijing Wireless lladio Pact BCM-III (8) Beijing 15 Computer Factory DJS-065A (8) Tianjin 15 Wireless Pactory DJS-028 (8) Guangzhou Computer Plant DJS-083A (8) East China Normal Univ Great Wall 0520 (16) Beijing Telecom Equip Fact Zijin-II (16) Nanjing Zijin Computer Factory GF-20 (16) Beijing-Guangdong Computer Ctr TP-801 (16) Beijing Polytechnic University TP-86A (16) Beijing Polytechnic University 77-II (16) Lishan Microcomputer Factory TQ-0671 (16) Tianjin Computer Factory (8) 8-bit microcomputer (16) 16-bit microcomputer Source: China Computerworld, Beijing, 1984-85. 86 CPU MC6800 MC6800 8080A 6502 Z80A Z80 MC6800 Z80 Z80 8088 Z80 Z80A 8086 8086 8086(?) MC6800

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Table 4 Eatiaated Computer Production in China 1981 1982 1983 1984 Single-Board Microcomputer 1500 5700 10499 35000 Microcoaputer 380 1487 5436 27340 Minicoaputers & Mainfr 147 223 364 700 TOTAL OUTPUT VALUE (I.MB MILLION) 402.5 487 794 1589 Source: China Coaputervorld, Aaaorted Iaaues, Beijing. of China's Economy, Beijing, 1981-1985. 87 1985 -50000* 60000* 1200* 3655* Almanac

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Table 5 New US Computer Export Regulations (as of December 1985) 88 1. Digital computers: a)operated by civilian end-users for civilian purposes; b)are exported as complete systems or are enhanceaent1 of previously exported systems; c)have been priaarily designed for no~-atrategic uses; and d) do not fall outside the scope of the following limits: A.--Total processing data rate of 155 Kbit per 1econd and total connected capacity of main storage of 72 Nbit; or --Total proce1sing data rate of 100 Kbit per second and total connected capacity of main storage of 134.5 Nbit. B.--Input/Output control unit: --Total bit transfer rate of 101 Mbit per second --Maximum bitransfer rate of any drum or disk drive of 34 Mbit per second --Total connected net capacity of 74,000 Mbit. c.--Array Transform Processors: --Equivalent multiply rate of 800,000 operations per second --Fast Fourier Transform of 1024 complex points--40 ma. --word Length--38 bit. 2. Microcomputers: A.--Total processing data rate of 15 Mbit per second B.--Virtual storage capability of 512 million bytes Source: Federal Register, Volume 50, 1249, December 27, 1985.

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89 Table 6 Selected Examples of PRC Computer Imports & Forms of Cooperation with Foreign Corporations Foreian Firm Control Data Corp (US) Sperry Univac (US) Hitachi (Japan) Hitachi (Japan) Burroughs (US) Fujitsu (Japan) IBM (US) (United Nations) Sinc:lair (UK) Sperry (US) Sems (France) IBM (US) IBM China (US) Kanematsu-Gos ho (Japan) General Robotics (US) Honeywell (US) PRC Organ Min of Petro Industry(?) CNMIEC CNMIEC Nature of Project Sale of 2 Cyber 172 Sale of 1100/11 & 1100/12 systems Sale of 3 11ainfra11ea & 2 M-160 11ainfra11ea* People's Bank Sale of 11 M-150 comp People's Insurance Beijing Inst of For Trade Tianjin Municipality CNTIC South China Comp Corp Sale of B3950 & B876 computers Establish large inform system Sale of 16 series 4300 computers for census Assembly of ZX-81 & Spectrum home computers China Computer Technical services Tech Services Corp Guangzhou Municipality Instrimpex Min of Educ Manuf Solar 16 minicomp Sale of 11 4341 comps Donate 100 5550 micros to MoEd Date 1976 1978 1978 1979 1980 1980 1980 1983 1983 1983 1983 1984 Marketing & service for 1984 CEIEC Instrimpex IBM PCs: 5150/5160/5550 Assemble DEC-like minicomputers Service center 1984 1984

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Eastern Coaputer (US) Control Data Corp (US) Hewlett-Packard (US) Burrough (US) NEC (Japan) Wang (US) Wang (US) Gould (US) Altos (US) Honeywell (US) (World Bank) Honeywell (US) Sumitomo & NEC (Japan) Fujitsu (Japan) Hitachi (Japan) Genisco (US) Data General (US) Digicon Geophysical (US) Kenan Inter Econ-Tech Corp Computer components & software MEI/SACI R&D and training in computer technology CEIEC Yunnan Elec EquipPactory North China Tera Equipment Corp Xiaaen Constr JV for microcomputer asseably/aanuf Distribute & assemble B20 & B25 microcoaputers Assembly of PC-9801P microcomputer Assemble microcomputers 90 & Develop Corp & diatrib Wang products CEIEC (Shanghai) CNMEIEC/Tianjin Automation Factory Shaoguan Radio Factory(Guangdong) Produce microcomputers Assemble industrial programmable controllers Sale of production line for 16-bit microcomputers 1984 1984 1984 1984 1984 1984 1984 1984 1984 Ministry of Educ & CNTIC Sale of 14 Systems (DPS 1984 6 & DPS-8 plus software) Great Wall Corp (MSI) Min of Education CNTIC & Meterological Ctr in Beijing & several universities CNTIC Sale of DPS-6 systems 1984 Sale of 305 8-bit PCs 1984 Sale of 24 FACOM series 1984 large computers (360R, 360S, & 340S) Sale of 12 small & med 1984 comp for cons tr, civil engin Hunan Comp Factory JV to produce comp graphics terminals 1984 Tianjin Comp Corp Sale of 32-bit MV line & 16-bit desktop comp Min of Petro Ind Sale of seismic comp equip & software 1984 1984

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Cullinet (US) Intel (US) Chiu Hwa Elec (BK) Williaa Elec Coap Ling Lang Micro & Comp Corp (Ul) Prime (US) Sord Coap (Japan) DEC (US) Prime (US) CDC (US) Groupe Bull (France) Toshiba (Japan) Charles River Data Systems (US) Corporate Data Sciences (US) Hitachi (Japan) attach! (Japan) Urchida Yoko (Japan) China Comp Tech Service Corp China Aero Tech Im/Ex Corp Dalian Municipality Guangdong Province Nin of Railways CAS Min of Water Application & develop of software Assemble 4000 86/310 & 286/310 microcomputers Manuf microprocessors & training Manuf componts & micro computer systema Sale of mainframe plua Medusa software Sale of 30-40 PCs plus eat of PC training ctr Sale of 4 VAX 11/780 91 1984 1984 1985 1985 1985 1985 1985 Conservancy & Power minicomputers Beijing Inst of Technology Min of Petroleum Industry CNTIC Nanjing Info Equip Corporation Tianjin Computer Factory Guangzhou/ Hong Kong People's Bank Min of Railways CAS Sale of Prime 9750 comp 1985 Sale of 5 Cyber 180 1985 computers & CAD/CAM software Sale of 5 mainframes, 1985 60 minis & 320 terminals Assembly of dot matrix 1985 printers Subassembly of 32-bit 1985 Universe 68 computer Sale of 4000 IBM PC/XTs 1985 10,000 desktop comp Sale of 15 computer systems (US$25-30 M) Joint development of software & sale of 30,000 microcomputers Joint development of computer software 198 5 198 5 198 5

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Sperry (US) GE CALMA (US) Mancos Coaputer ( Ult) China Comp Tech Service Corp & Wuxi Comp Factory Introduced MAPPER IC software system 92 1985 CNTIC CAE/CAD equipment. incl. 1986 60 Apollo workstations Rong Kong Sale of general comps 1986 e.g. Chongqing Univ------> VAX 11/750


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